Though the pandemic’s effects are still rippling through society, it seems the U.S. has entered a “post-pandemic” phase. Roughly 43% of the population is fully vaccinated, the CDC has significantly relaxed mask-wearing guidelines, and all 50 states have either eased or completely lifted restrictions. The prevailing narrative seems clear – after an incredibly difficult 15 months, life is returning to some form of normalcy. How that normalcy is defined may depend on your financial standing.
The COVID crisis has, for the sake of simplicity, produced two economic groups – those who survived unscathed and those who struggled. If you’re in the former category, this might seem like the time to indulge.
“There’s pent-up demand, but you don’t want to fall into a debt trap,” says Lynnette Khalfani-Cox, a personal finance expert known to many as The Money Coach®. She notes that consumers will be under pressure to make purchases in the coming months, as summer holidays give way to retail sales and in-person gatherings (e.g., barbecues, picnics, etc.) resume, but they should avoid overspending.
In lieu of big shopping trips, Khalfani-Cox encourages people to save. She says the goal is to build up enough reserve cash to cover 3 months of expenses. Though this might sound like a lot to some – even those with extra money on hand – you don’t have to save it all at once.
“I really favor an approach that encourages baby steps,” she says. If you can only put away $100 each month, go for it. Something in the bank is better than nothing.
On the flip side, if you’re struggling to make ends meet, you may have debt to repay and that can take priority over building emergency savings. However, Khalfani-Cox says you don’t have to choose.
“Do both – the two are not mutually exclusive. It’s a misconception that you should only do one thing,” she says. If you spend your funds paying down credit cards, without saving, you’ll be forced to pay for emergency expenses with those same credit cards, extending the cycle of debt.
Not to mention, there’s good reason to save. A 2021 Bankrate survey found that less than 4 in 10 Americans have enough money to cover an unexpected $1,000 expense. Thus, balancing debt repayment with saving can help you tackle two goals at once.
Additionally, if you find yourself suffering financially as the economy reopens, Khalfani-Cox suggests three key steps to reverse your fortune. First, don’t be afraid to look for help.
“Every possible resource that’s out there and to which you’re entitled, you should absolutely tap into it,” she says.
Second, brainstorm ways to create additional income streams, and lastly, sell personal and household items that you no longer want or need.
However, regardless of which economic group you belong to, the choices you make now are all in service of the same goal – protecting your credit. Khalfani-Cox warns that “your finances impact every other aspect of your life”. If you accrue more debt than you can handle, this can hurt your score. (30% of your FICO® score is based on the debt you hold.) If you miss a payment, this can drop your score, too, to the tune of 50-100 points.
Surprisingly, these credit score drops can also impact your job, as employers often perform employment-based credit checks before hiring or promoting staff.
“Don’t for a second think that everything is fine and dandy,” she says. “We need to be ever vigilant about our finances. At any given time, things can go south.” Because of this, she warns against job complacency.
Ultimately, whether you’ve shored up your funds or you’re desperately seeking them, your actions should always be the same – save, save, save.
“Your personal balance can never be too strong,” Khalfani-Cox says. “Nobody ever regretted having too much savings.”