I’m a Financial Planner: 7 Things You Must Do Immediately If You Run Out of Savings

i’m a financial planner: 7 things you must do immediately if you run out of savings

Concerned Black Couple Suffering From Poverty During Quarantine, Counting Remaining Coins

According to CNN, Americans managed to save around $2.1 trillion in total during the COVID-19 pandemic. While this sounds like a massive sum of money, it’s been largely depleted since then.

In fact, the Federal Reserve Bank of San Francisco found that American households as a whole have spent all of their pandemic savings as of March of this year. Now the estimated excess savings across all citizens is in the negative by $72 billion. This suggests that Americans have switched from saving money to accumulating debt.

Find Out: How Much Does the Average Middle-Class Person Have in Savings?

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If you’re someone who’s either run out of savings or is about to, your best bet is to take a proactive approach to your finances and get things back on track before you end up taking on debt or falling behind on other financial goals — whether that’s buying a house or preparing for retirement.

But how should you go about it? GOBankingRates spoke with two financial planners, James Sanford and Taylor Kovar, to find out the best things to do when you run out of savings. Here’s what they suggested.

Evaluate Your Finances and Household Budget

“The first thing you should do if you run out of savings is review your current budget and spending habits. This should be done so you’re able to make adjustments and get back on track,” said James Sanford, founder of Sanford Financial Services.

Take some time to sit down — either by yourself or with a partner with whom you share finances — and really evaluate your finances. This means reviewing your income across all sources, as well as any assets and debts you have.

It also means outlining your fixed and variable expenses and finding out exactly where your money is going each day, week or month. If your expenses or income fluctuate, look over the last three months’ worth of bank statements and use those to do your calculations.

Learn More: Mark Cuban Reveals Why He Keeps a Strict Budget Everyday

Prioritize and Cut Back

It might not be easy to cut back on spending, but if you’ve completely run out of savings — even to the point where you have no emergency fund — your best bet is to rebuild as soon as possible. This means reducing your expenditures as much as possible.

“Once you know your financial status, prioritize essential expenses, such as housing, utilities, groceries and healthcare,” said Taylor Kovar, CFP, CEO and founder of 11 Financial. “Reduce your discretionary spending, [and] hold back on nonessential spending until you achieve a stable financial situation.”

If you don’t already have a budget, you should create one that works for your household. Even if you do have one, now’s a good time to reevaluate it and make changes as needed to ensure you’re not spending more than you should be or living beyond your means.

Find Ways To Boost Your Income

“Increasing your income through part-time work, freelance gigs or side hustles can help cover immediate expenses and provide the ability to save more over time,” Kovar said.

You might need to make certain sacrifices to make this work. For example, you might need to give up a regular day off or work a few extra hours on work nights.

The sooner you can get back on track with your savings, the better. After all, you never know when something might happen — like getting a bill you didn’t expect or having cutbacks at work — and the last thing you want is to be caught unprepared.

Focus On Your Emergency Fund

“Once you have a stable financial situation, make building an emergency fund your top priority to protect against future financial setbacks,” Kovar said. “Aim to save at least three to six months’ worth of living expenses in a high-yield savings account to cover unexpected expenses or income disruptions.”

Say, for example, your current household expenses add up to $4,500 a month. You should work toward building a fund that holds $13,500 to $27,000 in it. You don’t need to do this all at once — even having $1,000 in a secure account can help with minor financial emergencies. Start small and go from there.

If you’re really in a pinch, Sanford suggested applying for financing — like a small personal loan or line of credit. “This can help you bridge the gap while you’re getting your emergency fund rebuilt,” he said. Just make sure you can reliably pay off what you owe and that the rates and terms work with your situation.

Look For Unusual Sources of Money

“Another thing you can do as soon as you run out of money is obtain funds from your life insurance cash value, if you have a policy,” Sanford said. “Cash value from a life insurance can also help you cover costs in the short term.”

Not everyone has such a policy, and that’s okay. See if you have any other sources of cash that you might not have thought about. This could be money that comes from other investments or even retirement accounts — though you’ll want to go this route only if you’re already experiencing financial hardship and need the extra cash.

Keep in mind that withdrawing from certain types of accounts can come with penalties or fees. For instance, there’s a 10% early withdrawal penalty for taking money from a 401(k) before you’re 59 1/2 years old — though exceptions might apply.

Get Aggressive With Your Savings

As you start saving back up, you’ll want to set some clear goals that align with your current budget and needs.

“Your goals should encourage you to save more and should be for the short and long term,” Sanford said. “Begin saving 10% to 20% of your monthly income.”

If you can’t quite manage that yet, start with an amount you can save. As your income improves and you find other ways to lower your expenses, you can always increase your weekly or monthly savings amount.

“Make savings a priority, automating contributions to provide consistency,” Kovar said. This can help keep you on track with your goals. You can set up automatic withdrawals from your checking to your linked savings account, based on either a percentage of your income or a set amount.

You don’t have to put all of your savings into one account, though. “Diversify your savings with a portfolio of assets, such as stocks, bonds and real estate — among others — to help reduce risk,” Kovar said.

Get Rid of Debt as Soon as You Can

Having debt is one of the fastest ways to deplete your savings, but it can also make it harder to achieve other financial goals. If you absolutely must have debt while you’re getting back on track, that’s one thing. But once you’ve got a better handle on your finances, and a little bit of an emergency fund, it’s time to focus on paying off any debts you have.

“It is crucial to minimize debt and focus on paying any current high-interest debts as soon as possible,” Kovar said. “Avoid taking on debt unless you find it necessary, and have a stable repayment plan.”

“Remember, if you don’t have the means to pay off credit cards in-full at the end of each month, then you shouldn’t swipe it,” Sanford added.

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    This article originally appeared on GOBankingRates.com: I’m a Financial Planner: 7 Things You Must Do Immediately If You Run Out of Savings

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