Prepping for Times of Uncertainty
by Alacias Enger
Amy is a New Jersey native working in the nonprofit sector. She feels passionate about her work which centers around providing resources to struggling families and individuals. Amy’s current position is largely administrative, which has allowed her to work from home during the COVID-19 pandemic. Amy enjoys a full benefits package which she couples with a Patient Assistance Program (PAP) for her prescription drug coverage.
Throughout the COVID-19 pandemic, Amy’s employment has remained stable and her bills are all current. However, she has come to the realization that she would be ill-prepared if something unforeseen were to happen. When it comes to finances, Amy has always been responsible, but doesn’t entirely know where to focus her attention. Amy has a few thousand dollars in savings and hefty student loan debt. Additionally, she has yet to start saving for retirement. Three key elements in securing a solid financial future include debt elimination, retirement savings, and an emergency fund. Like many Americans, Amy has been grappling with all three. Having an emergency savings is one of the key aspects to a solid financial foundation, and the perfect place to start especially in times of uncertainty. Experts generally suggest keeping three to six months of expenses in a savings account for emergencies; Amy has slightly more than one.
In March of 2020, the CARES Act provided student loan relief by automatically placing eligible student loans into forbearance through September 2020 and reducing interest rates to 0%. Currently, this emergency relief measure has been extended through September of 2021. Any payments made during this time will reduce the principal of the loan. Amy would really like to be rid of her student loans and would like to evaluate her options. Working for a qualifying nonprofit, Amy can expect to have her student debt forgiven under the Public Service Loan Forgiveness Program provided she makes 120 payments under an income-driven repayment plan. Fortunately, Amy is already on a qualifying payment plan. In general, this forgiveness program requires that she makes monthly payments. However, another CARES Act provision which has been extended, states that during this time, each month of forbearance will be treated as an on-time payment for purposes of forgiveness. So, while Amy hasn’t been making her usual $400 monthly payment, she has still been making progress toward loan forgiveness. By filing an annual certification, Amy can receive official verification of her progress toward forgiveness. Since she has only been working for her current employer for three years, she still has plenty of time to go before full forgiveness is an option. So, Amy hasn’t decided if she really wants to wait that long to be clear of this debt.
While it’s tempting to take advantage of the lack of interest accumulating on her student loan debt, Amy’s lack of savings has left her entirely vulnerable in case of an emergency. If there is anything this pandemic has taught us, it’s the value of an emergency savings. If she chose to save the amount of her usual student loan payment, she would have nearly doubled her emergency savings by the time her payments were scheduled to resume. Amy also has an income tax return coming, which she could add to her emergency savings, placing her over the three-month mark. Once Amy achieves a savings equal to three months of her very basic expenses, she may want to reevaluate and consider increasing her goal to a full six months.
In the meantime, it would also be advisable for Amy to contact her HR Department at work and request the necessary paperwork to begin contributions to her 401(k). Her employer provides a match up to 4% of employee contributions. An employer match is literally free money. At bare minimum, she should be sure to contribute enough to get the match. Over time, Amy should make it a goal to contribute at least 15% of her income to retirement savings to ensure her financial future. When you haven’t been contributing anything at all it can seem overwhelming to see that much leave your monthly budget all at once. So, one strategy is to start with the amount of the company match and set up automatic adjustments to increase your contributions in small increments a few times per year. This way, you can adjust to the change little by little, while maximizing future savings.
It’s easy to get overwhelmed by the plethora of options in front of you when preparing for your financial future. Start with the foundation of a solid emergency fund and build the rest from there.
Alacias Enger is a performing artist, writer, and educator. She lives with her partner in New York City, and is the founder of blogs “Sense with Cents” and “Travel Cents.” Follow her on Twitter @sense_w_cents.