Harrisonburg, Virginia — January is Financial Wellness Month. The new year can be a good time to take a fresh look at personal finances, financial goals, and spending habits.
Whatever your financial situation, creating a budget, building up savings and paying down debt are important, says Pam Drake, a James Madison University professor and finance expert.
“A standard budget rule is to allocate 50% of after-tax income to basic expenses such as rent and food, 30% to non-essential expenses, and 20% to savings.” Although not everyone is able to put money into savings, a silver lining in the current financial situation is that after many fluctuations during the COVID-19 pandemic, the personal savings rate in the United States has returned to pre-pandemic levels, according to the United States. Economic analysis offices.
Yet for many people, personal finances remain a source of anxiety. Job security, debts and expenses can add to stress. This stress can lead to a cycle of poor financial decisions and even affect physical health.
COVID-19 has introduced more uncertainty, including changes to student loan deferral, eviction bans, and other regulations created as social supports. “It’s been confusing for individuals as well as small business owners,” says Drake.
This year, many people will also need to consider job changes as part of their financial planning. “We are seeing changes in the job market, with many people reassessing their careers. For some, the pandemic has meant higher wages as they return to the workforce. For others who have enjoyed working life remotely, the emphasis on staying remote may lead to job changes as companies bring workers back to the office,” Drake explained. “For some players in the gig economy, the results are mixed. Some have found themselves unemployed or underemployed, where others who have been innovative during the pandemic have thrived.
As people adapt to the new financial landscape, some prescriptions for financial well-being are also changing. Experts like Drake now recommend saving four to six months of spending on emergency savings, up from the previous recommendation of two to three months. Debt repayment is also more important now than in the past given the uncertainty of a return to normal.
Prioritizing paying off or paying off debt on credit cards with high finance charges is an example of how people can work toward a healthier financial future by eliminating future months of onerous fees, Drake said. .
She also urges caution when it comes to one of the biggest financial trends right now – FinTech. Fintech is what enables one-touch banking and insurance. It also opens the door for novices to participate in the stock, options, and crypto markets, a popular COVID-19 pastime. “FinTech is awesome, it makes life easier for all of us,” Drake said. “It also allows people to get in over their heads with losses very quickly.”
Regardless of how people spend their money, budgeting to sort “needs” from “wants” and prioritize spending is an important step anyone can take to increase their financial well-being.
Contact: Ginny Cramer, [email protected], 540-568-5325