If you’re thinking of switching careers, starting your own business or making some other major life change, there may be a financial cost, at least in the short term. At a minimum, “you should have a spreadsheet with the bills and things you need to have covered regardless of how the business or side hustle does,” Timmerman said. Try to have a good idea of how many months you can cover those bills out of your savings, she said, or what you’ll do instead to pay them. It might mean selling a car or moving into less expensive housing.
Assess three things.
Whether you’re dreaming of turning your pandemic side hustle into a new career and need to determine how to pay for it, or you simply want to feel you’re on firm financial footing, planners say there are generally three major financial areas to evaluate first.
“If someone has an emergency fund, no high-interest debt and is saving a decent amount for retirement, they’re in a good position to make big changes,” said Brian Walsh, senior manager of financial planning at SoFi, an online lending start-up. “If they don’t have those boxes ticked off, they should be more careful.”
BUILD UP AN EMERGENCY FUND In the past, planners have generally recommended that people have three to six months of expenses in an emergency savings fund to carry them through tough times. Some now suggest that fund should be able to keep you afloat for up to a year.
“Now, the advice is even more conservative,” said Dan Herron, a certified financial planner and co-founder of Elemental Wealth Advisors in San Luis Obispo, Calif. “Covid just happened, it’s still here, and what’s to say that something else isn’t coming down the road that’s even worse?”
Your emergency fund should cover basic expenses such as rent or mortgage payments, utilities, food and transportation. You should also set aside enough to cover monthly health insurance premiums and car or homeowners (or renters) insurance as well as credit card or other debt payments.
Whether your savings are healthy or you’re trying to shore them up, the same advice applies: Set a monthly savings goal and stick to it. Even better, have the funds automatically withdrawn from your bank account every month and deposited in your savings, retirement or brokerage account.