If you could create a financial first aid kit for anyone to use during any crisis, what would it have?
As appeared in the Cleveland Fed Digest's Ask the Expert
I know it can be challenging, especially during a pandemic, but one thing we should have in our financial first aid kit is an emergency savings account. We’ve seen how a lot of blue-collar and retail workers suddenly lost their jobs; some were a paycheck away from being homeless, and some were even less fortunate. Economists say we should have at least three to six months of living expenses set aside. I know reaching this goal is much harder for some than others.
Another thing we should strive to have is a good credit score. It allows us to have financial freedom. It can be one key to purchasing a home. We’re able to take advantage of lower interest rates, and that allows us to pay off loans faster. As a result, we may have more cash for other expenses or to add to our savings. We’ll be better able to avoid payday loan shops, which charge high interest rates to people who have bad credit, limited resources, and limited options. When we have a good credit score, we put ourselves in a better position.
We should also have a will in our financial first aid kit. We have seen this pandemic kill more than half a million people in the United States alone. We could be in our car going to work and something could happen. We just never know. Make sure loved ones have access to finances after death. Keeping an updated will reassures us that our finances will be taken care of in the ways we wish, and it keeps things out of the courts. It designates the beneficiaries of 401(k) plans, individual retirement accounts, and bank accounts. Be sure to work out who these beneficiaries are. It’s fairly easy to put a parent’s or a child’s name on bank accounts, either as a joint owner, if that’s right for someone, or as a beneficiary. This way in case something should happen, they can take care of things.
The last thing we need in our kit is a retirement account. With the advanced technologies and medicines that we have access to, people are living longer after they retire. I know a few people who retired early, saying this pandemic forced the issue. “You know what?” they said, “I’m done. This pandemic has done me in, and I’m just going to retire.” We all know that the cost of living is going up. The AARP says the average social security benefit in 2021 is $1,543 a month. Is that enough to live on? We have to make sure that we’re able to sustain our living expenses. Make sure to have a good retirement account.
We’re all in this together. It’s a challenge. We don’t know what the future may hold for us, but being financially prepared will help lessen the burden for us and our families.
You’re here today.
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