If we’ve learned anything from the pandemic, it’s that life is unpredictable and its unexpected twists and turns can dramatically affect our finances. The key is to stay focused on changing trends and use them to your advantage. Experts suggest these tips to make today’s financial landscape work for you.
1. Make a plan to pay off your credit card debt.
Many Americans were forced to take on more credit card debt during the pandemic because they were working fewer hours, had been placed on leave, or were made redundant.
While many physicians did not appear to be financially affected by the pandemic, a good number experienced temporary financial setbacks, as seen in the Medscape 2021 Physician Compensation Report and the Medscape Physician Wealth and Debt Report 2021.
An article in Business intern advises you to create a timeline to pay off the debt you racked up during COVID-19 – or any other credit card debt, for that matter.
Start by figuring out where your money was spent in 2020, or even the past few months, so you can focus on where to cut costs. Then set up a budget using an app like Mint or some other type of budgeting software to help you categorize your spending.
The app will help you stay within your budget limits. Of course, you need to figure out what expenses you can cut back in order to use that extra money to pay off the debt. Once you’ve done that, make a debt repayment plan. One approach (sometimes referred to as the “snowball method”) is to pay off the smaller debt first, then transfer that payment to the next larger debt and in this way you work your way up to debt. the highest.
The other is a more “top-down” approach (sometimes referred to as the “avalanche method”). With this method, you first target the debts that have the highest interest rates, and then use the money freed up to pay off subsequent debts. Pick a strategy that’s right for you and stick to your debt repayment plan.
If you’re having trouble sticking to your debt repayment plan, consider consolidating your debt on a credit card with balance transfer or a personal loan. This will allow you to have all of your debts in one place with a lower interest rate and just one monthly payment.
If you’re having trouble making payments on time or meeting the minimum payment, another option is to call your credit card provider. Many companies will work with you to give you more flexibility on payments as well as lower interest rates.
It may also be helpful to see a financial advisor, who can help you pay off your debts.
2. Invest wisely in real estate … location, location, location.
Investing in real estate is traditionally seen as an “accessible and reliable way to create passive income and prepare for unexpected changes in the economy“.
But not all real estate is created the same, and the property that was supposed to write off your bank account shouldn’t drain it. So you want to look for properties with increasing appreciation rates.
An article published on Yahoo finance (and which originally appeared on Insider Monkey.com) lists the top 15 states to invest in real estate in 2021, with real estate appreciation as the “key indicator.” The appreciation rates take into account mortgage rates as well as data on the cost of living, which gives an indication of the interest that potential buyers or tenants would be in living in these areas.
The article lists the 15 most lucrative states. Idaho is number 1, with total real estate appreciation over the past 2 years of 28.49%. Arizona is number 2, with an appreciation rate of 20.43%, followed by Utah, Maine, Montana, New Hampshire, Washington, Rhode Island, Tennessee, Oregon, from Ohio, Indiana, Connecticut, South Dakota and California.
3. Stock market volatility is not necessarily a bad thing.
After a long streak of consecutive wins, the stock market experienced a sudden slowdown last year, driven by fears that a slight increase in COVID-19 cases could hurt the global economic recovery.
Experts offer advice not only to overcome market volatility, but even to use it to your advantage. They point out that the relativity of the market is an integral part of the investment process and that it is in fact the best way to beat inflation. Rises and falls in the market are opportunities to review your asset allocation. If you’re worried about a sharp drop, you can turn part of your portfolio into safer stocks. This way you are protected against a possible market correction, which is defined as a drop of more than 10%.
A decline is not a good time to sell stocks, because selling when the market is falling means that you will miss out on the benefits of the rebound when the going gets better. In fact, perhaps counterintuitively, the downturn is a good time to buy more stocks, paving the way for future gains, as stocks are likely to be traded at a discount.
During a market crash, you can protect yourself against the need to increase your income or replenish your losses by always having an emergency fund. Experts say it’s better to spend the money in your emergency fund than to sell assets at a loss.
4. Take advantage of lower mortgage rates.
Now might be a good time to finance a home, as both 15 and 30-year fixed mortgage rates have come down. The average rate for a 30-year fixed rate mortgage (the most frequently used loan term) is 3.03%. A 15 year fixed rate mortgage is 2.38%. Both are reasonable options, but the 30-year mortgage usually has a lower monthly payment than the 15-year, although it often has a higher interest rate.
But despite the higher interest, it’s still a good option if you want to keep your monthly payment low. On the other hand, if you can afford the monthly payments, you’ll end up paying less in the long run for a 15-year loan because the interest is usually lower and you’ll finish paying it off in half the time. .
While many people prefer fixed mortgage rates, 5/1 variable rate mortgages may be an option to consider, especially if you plan to sell or refinance your home before the rate changes. The average rate has also gone down recently, and you could also end up paying less interest than you would for a 30-year fixed rate mortgage. But keep in mind that depending on loan terms and market rates, you might end up paying more interest after this period.
Before you rush to take advantage of these lower rates, take a step back, think about your personal needs and financial situation, and be sure to do your homework and compare different lenders to find the one that’s right for you.
5. Maximize your contributions to the IRA.
There are all kinds of benefits to opening and IRA and maximizing your contributions to an existing IRA if you have one. With a traditional IRA, you can get immediate tax deduction or deferred income, with the expectation that your bracket will be lower in the future, according to an article in Kiplinger Finance. This could be useful if you plan to retire soon or if you think your income will be lower in the years to come.
However, the downside is that you will eventually have to pay taxes on this type of IRA; and if you withdraw the money before the age of 59 and a half, you will pay a heavy penalty (10%). You must also receive minimum distributions after age 72.
An alternative is a Roth IRA, which you contribute to after paying taxes. The good news is that you can withdraw cash without paying any additional taxes or penalties once you’ve owned it for 5 years and are over 59 and a half. In addition, no minimum distribution is required.
Currently, the maximum amount that can be contributed to the IRA or both IRAs combined in 2021 is $ 6,000, which has been the case for 2 years. However, if you are 50 or older, you can add an additional $ 1,000, bringing the maximum contribution to $ 7,000.
Batya Swift Yasgur MA, LSW, is a freelance writer with a consulting practice in Teaneck, NJ. She is a regular contributor to numerous medical publications, including Medscape and WebMD, and is the author of several consumer-focused health books as well as Behind the Burqa: Our Lives in Afghanistan and How We Escaped to Freedom (memoirs of two brave Afghan sisters who told her their story).
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