Top Tips For Personal Financial Strength
Financial security is crucial for anyone hoping to build a stable and secure future for themselves and their families. In today’s uncertain economy, having strong financial health is the key to weathering this and other future storms.
Building a robust financial foundation requires some patience and planning. Even if you are overwhelmed by the state of your finances, it is possible to build, brick by brick, an improved financial situation for yourself. Keep reading to uncover valuable information about creating an emergency fund, using credit cards, and how your 401k may come into play.
Create An Emergency Fund
As much as we like to plan our lives and make a plan for what lies ahead, the truth is, nobody knows. It is possible to say that the majority of the world did not see the coronavirus pandemic coming. As a result, millions of people were left with uncertain economic outlooks and hardships. You never know what could happen, so it is best always to be one step ahead.
Creating an emergency fund requires some planning on your part. Carefully consider the following questions:
- How much money do you need to set aside to feel secure?
- What is an amount you can afford to set put into savings each month?
- What kind of events should you be saving for?
Answering these questions will allow you to understand the right number for your emergency fund and help you plan how to get there.
Creating an emergency fund usually requires two steps. The first is to critically evaluate your current budget and identify where you can cut excess spending. Eliminate what is unnecessary, and allocate those savings toward your emergency fund.
The next step is to get in the habit of saving monthly. It is a good idea to transfer money each month into a savings account automatically. That way, you will not miss a month and can remain on schedule.
Use Credit Cards
When money is tight, relying on credit cards for temporary relief is an option. You will want to be sure you are taking the proper steps to ensure that it remains an option for you. Consider doing the following:
- Pay on time every month. Late credit card payments are reported to credit agencies, which then impact your credit score. The lower your score, the harder it will be to access better terms from your credit card issuer.
- If you can pay off your credit card, do so. It is not true that having some amount of debt left on your credit card is good for your credit score.
- Research and learn about credit score maintenance. Learn essential tips and tricks to improve your credit to ensure you have options in the future.
Remember these important points as you manage your current cards or if you apply for new ones. More importantly, do not forget that credit cards, like personal loans, may affect your credit score. Borrowing wisely can be an effective tool for constructing a solid financial future.
Utilize Your 401k
Another option for creating an emergency fund is to use your retirement savings, most typically held in what is known as a 401k. In short, a 401k is a company-sponsored retirement savings account that employees can contribute to each year.
Having a 401k allows you as an employee to divert a segment of your salary into long-term investments. Your employer may offer to match the employee's contribution up to a specific limit. Ideally, this is a long-term investment that grows throughout your working years.
Although a 401k is a long-term savings plan, it can technically be used if you need cash urgently. The recent CARES Act, passed in March 2020, makes accessing funds from your 401k easier. This legislation was passed in an effort to help people deal with the economic ramifications of the ongoing pandemic. There are two critical changes to be aware of:
- If you have been affected by the COVID-19 pandemic, you can now withdraw up to $100,000 from your 401k accounts or IRA. This comes without a penalty, and you can even avoid taxes if the amount you take out is repaid within three years.
- People with a 401k loan are now eligible to borrow up to 100% of their vested balance, up to $100,000. The CARES act also allows these borrowers to delay any payments they owe in 2020 for up to one year, granting much-needed breathing room.
Ideally, your 401k will continue to sit and grow. However, if you do need to access funds to make ends meet during an emergency, you have options.
We never know when the next rainy day will strike, so it is prudent to take proactive steps to prepare for the unknown. Understanding how to build financial strength, use credit cards, and knowing how your 401k works can give you the power to make better financial decisions for yourself in the present and down the line.
From medical emergencies to global pandemics, nothing is a given, and taking some simple steps toward financial health can help immensely down the road.