Emerging from the Fog
Preparing Your Budget for Reopening
by Alacias Enger
Taylor is a forty-year-old New York City resident who, like many, is trying to successfully navigate the many changes brought on by the COVID-19 pandemic. Taylor had been working as an assistant manager in a successful restaurant chain. The company provided them with insurance, a 401(k), and a growth plan that would allow them the opportunity to advance. Unfortunately, their plans were dashed when COVID-19 struck, annihilating the restaurant industry. Taylor was temporarily forced onto unemployment. Thinking quickly, Taylor started reaching out to contacts and learned through a friend that a local company was hiring for a position in their Medical Records department. Taylor jumped at the opportunity, and after a successful interview, secured the position.
Fortunately, Taylor’s tango with unemployment was brief and the health insurance, which they couple with a co-pay program for medications, at their new job went into effect very quickly. By being proactive and utilizing their network, they were able to avoid having the kind of lapse in coverage that would impact their healthcare needs. Taylor did take a small pay cut and had to wait for their first paycheck, which resulted in falling behind on rent by one month which they’re currently working on catching up. Additionally, Taylor has student loans that have been in forbearance, no savings, and their current company’s 401(k) will be an available benefit to them on their one-year anniversary which is in November.
As life begins to return to normal for the first time in a year and a half many Americans are left to repair the carnage that has been wreaked on their financial lives. In Taylor’s case this means paying very close attention to their budget. The 50/30/20 budget popularized by Elizabeth Warren is an effective system. Taylor’s fixed expenses such as rent, utilities, and other necessities with fixed costs should comprise no more than 50% of their budget. Lifestyle or flexible spending should consume no more than 30%, leaving 20% for goals.
Currently, Taylor has several financial priorities to balance. First, they need to become current with their landlord. Taylor has been in communication with their landlord and has arranged to make the regular payment plus an agreed upon amount beyond that each month until it is caught up. Remember, it pays to be proactive. Many landlords are willing to work with tenants, and the first step is to communicate, and make sure that any agreement that is made is one that is realistic given the current state of your finances.
Next, Taylor needs to prepare for student loan payments to resume. Federal student loans have been in forbearance due to the pandemic since March of 2020, but that relief provision is set to expire on January 31, 2022. It is imperative that Taylor make room in the goals section of their budget for these payments.
Once their student loans and extra payments to their landlord are accounted for, Taylor needs to begin setting aside a little money each month for an emergency savings. Without an emergency savings, it’s entirely too easy to lean on a credit card or fall behind on bills when something unexpected occurs. While building their emergency fund, Taylor can also begin contributing to the company 401(k) once they become eligible. Again, this comes from the goals category of the budget, which is dedicated to saving for the future and eliminating debt.
While Taylor is actively working to reorganize their financial life, they should also consider rolling over the 401(k) from their old company. Many Americans leave 401(k) plans scattered among companies they no longer work for because it simply is not in the forefront of their mind, but it is important to take your retirement funds with you. In order to avoid taxes and penalties, these funds must be rolled over. This can be performed easily at any discount brokerage firm, and in doing so you will have much more control over how the funds are invested.
Like many people, Taylor spent very little on entertainment and lifestyle related expenses during the pandemic. One of the beautiful things about the lifestyle category of the budget is its flexibility. Anyone wanting to accelerate their progress on financial goals like making up a missing rent payment or beefing up an emergency savings could easily do so by continuing to spend minimally in the lifestyle category. After just a few short months, plan to reevaluate the security of your financial position. If your budget and goals are in order, you’ll be able to enjoy the reopening and emerge from the fog with some newfound freedom.
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.