These are interesting times we live in.
One day we’ll be able to tell our grandkids about the “Great Coronavirus Pandemic of 2020” and the life lessons learned from having lived through it.
We realize there are a lot of people who are hurting. Physically, emotionally, psychologically, and financially. There are few places unaffected by these trying times. It’s a lot to take in.
While bad news abounds from every corner, it’s not all bad news. Even in the worst of times, opportunities present themselves if we look for them. This time is no different.
Here are 4 steps you can take today to strengthen your financial position and build towards a better tomorrow.
Refinance Your Student Loans
Interest rates are at all-time lows, which represents an opportunity for those with student loans. This is true if you have loans for yourself or if you are a parent and have PLUS loans.
I’ve seen variable rates under 3% and fixed rates as low as 3.45%.
And, unlike refinancing a mortgage, there is far less red tape to work through.
Further, if you’ve looked at refinancing in the past and have been disappointed, I have good news. There are a plethora of new players in the student loan space who have made the refinancing experience far more consumer-friendly. A few to consider are:
** Note: The new CARES Act includes several provisions that apply to certain federal student loan borrowers. Before moving forward with refinancing your federal loans, determine how refinancing would affect these benefits.**
Additionally, if you’re having difficulty making your student loan payment, DO NOT avoid the problem. Call your lender immediately and let them know of your hardship. They will work with you to find the best possible way to address your issue.
The worst thing to do is to do nothing and hope the problem will go away. It won’t.
Refinance Your Mortgage and Home Equity Line of Credit
Just as with student loans, mortgage interest rates are at historically low levels. Consider refinancing your first mortgage or even consolidating your home equity line of credit and having one mortgage payment.
The general rule of thumb is if the new rate is at least 1% less than your current rate, consider refinancing.
With that said, this is just a rule of thumb. If you’re not sure, run the numbers. There’s no harm in doing so, and you could actually save some money.
Further, the 1% rule only applies if you’re doing a straight refinance. Meaning, if you’re looking to consolidate other debt into the mortgage, you can throw the 1% rule out the window. The rate differential could be a lot less than 1% and still make sense. Again, run the numbers.
Your mortgage is often your largest expense. It’s worth it to inspect your mortgage further to ensure you’re not paying more than you have to.
Reflect on Your Financial Goals and Engage in Values-Based Spending
Many of us have a lot more time on our hands due to the US going into lockdown mode. Why not take advantage of this time to reflect on your financial goals and put a plan in place to achieve them?
True fact: people spend more time planning their annual family vacation than planning for retirement.
Another true fact: having written goals, you regularly review, dramatically increases your chances of success.
Use this pause in the action to spend time on yourself. Write down your top three financial goals and don’t be afraid to dream a little.
You can further increase your chances of success by following the SMART methodology for goal setting:
Here’s an example:
Goal: Provide 100% of in-state school tuition and room and board at a four-year institution. The cost is $25,000 per year in today’s dollars. The money should be available by July 1, 2030, which is the summer before college.
This goal hits all of the SMART criteria. It is specific ($25k per year for four years). Is measurable. We will assume the goal is achievable. It is certainly relevant. And it’s time-bound (by July 1, 2030).
Once you have a clear goal, you can find the right resources or professionals to help design a plan for reaching the goal. And you can confirm any assumptions (i.e., it’s achievable).
Imagine how your life might change if you identified your 3 most important financial goals, put them front and center, and developed a plan for reaching them.
Review Your Credit Card and Bank Statements for Spending
Another good use of time is to inspect where your hard-earned dollars are going. People are often shocked at where they’re spending their money.
“$110 this month for coffee? $83 at the local gas station that wasn’t for gas? There’s no way we spent that much on dining out.” And the drum beats on…
Chances are you are spending in ways that aren’t always consistent with your values or what you’d deem as “worth it.” There’s no reason to guess when you can review your numbers and know for sure.
It’s a simple process. Grab your most recent bank and credit card statements and review them line by line. If you look closely enough, patterns will emerge. Sometimes it’s spending at a single location. You may find you have a Target or Amazon addiction. Or, you could be frequenting the same type of stores, such as fast-food restaurants, far more than you realized.
If you pull statements for several months, you may notice you’re consistently making several larger purchases each month or every few months.
Add it all together, and you can see why it feels like you never have enough money.
Crisis Creates Movement
Change is hard. It often takes a crisis to get people to change their behaviors even when they know those behaviors are bad for them.
I’m not a fan of the dogma “never let a crisis go to waste,” but if we can walk away from the current crisis with one or two steps that can positively affect our lives, then at least some good will have come from this. As they say, when life gives you lemons …