The COVID-19 pandemic has brought many changes and challenges and has forced families to reassess their pre-pandemic personal finance goals. Some goals are no longer realistic or attainable, and unprecedented circumstances may have resulted in other goals taking on new importance. With life returning to a sense of normalcy, it is best to re-evaluate your financial goals to make sure they align with your current life goals. Regardless of your situation, taking a step back and reassessing your financial goals is essential.
What Are Your Financial Goals?
When reassessing your financial goals, there are many important things to consider, such as:
What are your short-term financial goals?
Reassessing your short-term financial goals is vital to ensure you are still on track to meet your long-term goals. Many people's short-term financial goals have changed due to the pandemic. For example, you may have originally wanted to save for a new car, but rising costs due to supply chain issues have made you realize you could pay for repairs on your current vehicle. Or the layoffs at the beginning of the pandemic made you aware your emergency fund is not where you really need it to be.
What are your mid-term financial goals?
Your mid-term goals are things you want to achieve in the next few years. This could include saving for a significant purchase, like a down payment on a house, starting a business, or taking a well-deserved trip around the world. When reassessing your mid-term goals, make sure they are still realistic and achievable. You also may want to assess how the pandemic impacted your financial standing regarding your mid-term goals. Something that may have been possible before the pandemic may not be possible now and vice versa. You may need to adjust your goals based on changes in your life, such as switching jobs or starting a family.
What are your long-term financial goals?
Long-term financial goals are things you want to achieve in the next 5 to 10 years or more. This could include saving for retirement, buying a second home, or investing in your child’s college education. When reassessing your long-term goals, make sure they are still in line with your overall financial plan. You may need to adjust your goals based on changes in your life, such as getting a promotion or taking a pay cut.
What to Consider When Reassessing Your Financial Goals?
Here are a few things to consider when reassessing your financial goals:
1. Your Current Situation
Understanding how you should budget from month to month when it comes to bills and other expenses is more important than ever. Your current expenses and how they have changed during the pandemic are essential factors to consider when reassessing your financial goals.
2. Your Emergency Fund
Having financial security during uncertain times is important, especially now. If you do not have an emergency fund, now is the perfect time to start one. Some people choose to use their savings account as their emergency fund, while others use a separate account just for that purpose. In your emergency fund, you should set a goal to save 3-6 months of living expenses in case of job loss or unexpected expenses. If you want to learn more about emergency fund best practices, read more on our blog post here.
3. Your Unwanted Debt
Taking care of unwanted debt such as student loans and credit card debt should be a priority when reassessing your financial goals. If you can, try to pay off your high-interest debt first, referred to as the debt avalanche method, to become debt-free. This will save you money in the long run and help you reach your financial goals faster.
4. Your Current Credit Score
Building or rebuilding your credit or maintaining a good credit score is vital for a multitude of reasons. A good credit score can help you get a lower interest rate on a loan or could make the difference between qualifying for a mortgage or not. If your credit score has taken a hit during the pandemic, now is an excellent time to begin rebuilding it. You can learn more about rebuilding your credit score here.
5. Your Retirement Plan
Financial freedom in retirement is something we all want to achieve. When reassessing your financial goals, make sure you are still on track to tuck money away for your retirement savings. You can adjust your retirement plan by contributing more to your 401(k), a Traditional IRA, or a Roth IRA.
6. Your Timeline
Your timeline for reaching your financial goals is also an important factor to consider. For example, if you want to buy a house in the next five years, you may need to save more each month to reach your goal. If you have a shorter timeline, you may need to adjust your plans accordingly. Adjusting your timeframe to fit your budget may also be a solution.
How Can TDECU Help You Reach Your Financial Goals?
At TDECU, our team of Wealth Advisors are here to help you and your family improve your financial literacy, enhance your money management, and navigate all your future financial goals. Contact us today for a free consultation to work with a Wealth Advisor you can trust.