Adulting 101: Build financial resiliency in the New Year

Monday, January 6, 2020by  PEMCO Insurance

If you were laid off, your car broke down or you got hurt and couldn't work for a few weeks, would your finances snap back quickly? About 60% of American households have some sort of financial setback every year, yet few are prepared. About 34% have no savings at all and 35% have less than $1,000 in the bank, according to a Motley Fool national survey. Women and younger millennials tend to be the furthest behind.


The good news is, financial resiliency doesn't automatically depend on the size of your paycheck. What you do with your money matters *almost* as much. If 2020 is your year to worry less and live more when it comes to finances, start with these four cornerstones:

1.    Personal insurance. Insurance stands between you and some of life's biggest what-ifs, starting with coverage for your car. Your home or renter insurance is critical, too – not just to replace your home and belongings if they're wiped out in a fire or natural disaster, but to protect you from a liability lawsuit. Health insurance is another must-have.

2.    Emergency fund. Financial advisers recommend you save at least three months' worth of living expenses to tide you over if you're suddenly out of a job or slapped with an unexpected expense.

3.    Retirement fund. Thanks to compound interest (your money making money), saving whatever you can in your twenties will, literally, pay big dividends later. At the absolute minimum, contribute enough to your company's retirement plan to get all of your employer's 401(k) matching contributions.

4.    Freedom from installment debt. Relentless monthly bills for credit cards, student loans and car payments can tether you to a job that doesn't match your abilities and keep you one paycheck away from disaster if the unexpected happens. Clear old debt – and don't accumulate new debt – to open the path to your future.

Your PEMCO insurance gives you a great start on the first cornerstone. And these tips can help you work on the rest:

1.    Budget. Yeah, nobody likes that word, but knowing where your money's going is a first step to holding onto more of it. Shoot for a 40/20/20/20 balance of:
• fixed expenses (rent, utilities, groceries, gasoline, insurance)
• savings (emergency fund, retirement, eventually investing)
• discretionary purchases (clothes, dining out, streaming services)
• reducing debt, paying extra to get rid of the highest rate loans first (credit cards, student loans, car loans).

2.    Pay yourself first. Use automated deductions from your paycheck to build your retirement and emergency funds. It's easier not to spend money you never see.

3.    Automate your bills. Set up your bills to be paid automatically so you can't forget a payment and get dinged with late fees and, worse, a mark on your credit record. On-time payments help build a good credit rating. (Just make sure your bank balance is high enough when the charge comes through.)

4.    Change the way you socialize. Spend time with friends who share your financial resiliency goals. Swap dinners out for potluck Netflix nights, trade mall shopping for thrifting (bonus: better for the environment) and learn to brew cheap, awesome coffee at home to shake your coffee-shop habit.

5.    Boost your income. Remember that *almost*? Making more money WILL help. That might mean sacrificing a low-paying job you like in favor of one that allows you to earn more. More strategies:
• Take evening courses at a community college to build your skills and paygrade (many employers offer tuition reimbursement for job-related courses)
• Get a roommate and charge rent
• Get a side job dedicated to that 40% of your budget for saving and paying down debt. For example, cancel your gym membership and get your exercise while earning extra cash as a dog walker. 

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