5 Basic Personal Finance Questions You Need to Answer in 2021

Good evening friends. Welcome back to my blog. “Where have you been?” you might ask. As you already guessed: school and work are still kicking my butt. I am also in charge of the vaccine clinic, and it has been challenging. The good news is COVID(+) cases, and hospital admissions have been on the decline since last week. I have already been seeing the downward trend happening at my hospital. This is amazing news because now I get a chance to breathe and go back to my normal workflow: narcotic audit, high-risk patient, Antimicrobial Stewardship, and many other duties. Right now is 10:30 pm. Even though I have to wake up early for work, my promise must be kept: 1 blog/month. Scrambling through some ideas for a good blog topic, I stumbled upon this article written in 2015. Let’s tackle 5 basic personal finance questions you need to answer in 2021.

1. Is your emergency fund sufficient?

Financial advisors often recommend that there should be three to six months worth of expenses in your saving account. This strategy is still relevant. However, if COVID19 has taught us anything, it should be SAVING MORE. Just look at the unemployment rate, for example, Patton from Forbes magazine compared the unemployment rate before and after COVID19 (Patton, 2020):

• Nevada: unemployment rate rose from 4.0% in May 2019 to a whopping 25.3% in May 2020.
• Hawaii: the second hardest-hit state, saw unemployment rise from 2.7% in May 2019 to 22.6% in May 2020.
• Michigan: is the only other state with unemployment above 20% in May 2020, where unemployment rose from 4.2% to 21.2% year over year. 

RELATED: MORTGAGE REFINANCE IN 2020: I JUST DID IT AND WHAT YOU NEED TO KNOW

2. If your emergency fund is sufficient, other than saving for retirement or your children’s education, are you done saving?

If you have done all 3 steps above, CONGRATULATION to you because you got the basic cover. This doesn’t mean that you are in the safe zone. As sadly as it sounds, life is full of the unexpected:

• Your 1994 Ford Bronco could need a head gasket replacement (estimated $914 to $1,124)
• The outdoor air conditioning might have a water leak (estimated $200 to $1,500)
• Your wife’s sister’s 14 years old teenager has a birthday tomorrow and she wants a diffuser ($101 for a Vitruvi Stone diffuser)

These events could happens at any times and it isn’t a bad idea to have these cushion in place for those rainy days.

3. If you have children, how will you help fund their education?

Researches show that children are very expensive. To put it into perspective, according to USDA recently issued Expenditures on Children by Families, 2015 , it cost $233,610 to raise a child up until the age of 18. Eighteen percent of that, which equals $42,000, goes towards education.

It is never too late to start saving for your child’s education, even when the kid is two years old. But it is also important to take care of yourself first. You can either set up a retirement account first and build it up to a certain amount, then start your child’s education funds. Or you can have both accounts running simultaneously but put more money towards the retirement account for now.

“One of the best ways to help a child financially while limiting your own tax liability is to use a 529 college plan“

Says Sam Davis, partner/financial advisor with TBH Global Asset Management. Another tax advantage strategy is to use your Traditional or Roth IRA.

4. What would happen if you were to lose your job? 

2020 wasn’t a good year overall for a lot of people. The unemployment rate was sent skyrocket. People couldn’t afford to pay rent. A lot of personal events such as weddings, birthdays, anniversaries were put on hold. If you lose your job, obviously you will no longer afford the prior lifestyle. But don’t get discouraged, there are a few things that you should do:

1. 1. File for Unemployment Claim to see if you are qualified. Each state has different criteria. If you live in California, more information is at the EDD website.
   2. Start updating your resume and look for another job. You can reach out to a recruiter at: Indeed, LinkIn, Monster, Glassdoor, Flexjobs, The Ladders, AngelList, …Don’t be picky because what’s more important right now is to get back on your feet and put your ego aside.
   3. If you are able to find another job, set up an emergency fund immediately. 

5. What’s the most reliable way to pay off debt?

The most reliable way to pay off debt is to change your living habit and start saving up your money. You can do that in these few steps below:

• • Step 1: Organize your finance. You might have automatic withdraw from a subscription that you don’t even know. Or you might spend way too much money on gas or grocery this week. I wrote How To Organize Your Finance article to help specifically with this task.
  • Step 2: Look at your credit card spending and try to understand the reason behind the charges.
  • Step 3: Formulate a budget. You can start by setting a monthly limitation. Once you achieve the monthly goal, you can move down to a bi-weekly budget.

I know it is easier said than done. Don’t expect to pay off your debt right away but it rather takes time to change the habits. If you live with someone like a roommate or a significant other, you can discuss it with them. Let’s not overthinking because it can cause stress. 

References

Patton, Mike (2020, June 28). Pre and post Coronavirus unemployment rate by state, industry, age group and race. Forbes. https://www.forbes.com/sites/mikepatton/2020/06/28/pre-and-post-coronavirus-unemployment-rates-by-state-industry-age-group-and-race/?sh=6f0ee159555e