Now Is a Key Time to Get Your Finances in Order. Here’s How to Do It

No doubt about it, this is a stressful time for many people, both personally and professionally. But according to Shannon McLay, the Founder and CEO of The Financial Gym, it does not have to be a financially stressful time – so long as you use it wisely.

“Most decisions we make financially aren’t going to kill us so it’s not a big deal,” McLay said during a virtual Related Speaker Series on financial health. “It’s important to take a deep breath.”

A former advisor for Merrill Lynch, McLay started The Financial Gym seven years ago to help people achieve their financial goals. At our virtual speaker series, McLay shared her best tips for navigating this tricky moment we’re in right now, from how much to invest in your 401K, to why you might want to consider re-financing your loans. Her top tips, below.

Related residents also receive a special offer on The Financial Gym’s services; check the Related Connect app for more.


Build up an emergency fund


Especially during a recession, it’s important to have the cash you need on hand in case the unexpected happens. In normal times, McLay recommends having enough money saved to sustain you for six months, and during recessions, she recommends having about 13 months’ expenses saved. “The highest priority we have for our clients right now is cash.”


Re-negotiate your debt


The Federal Reserve has lowered interest rates considerably, so it’s a great idea to re-negotiate or re-finance any loans you have. The recent stimulus package provided some relief on student loans held by the federal government until September 30, and you may be able to negotiate better interest on any privately held loans you have as well. In terms of credit card debt, always try to pay at least the monthly minimum, and if your credit score is above 650, you may be able to transfer the balance onto another card with lower interest.


Invest in your 401K or retirement funds – if you can


While your emergency fund should be your top priority, McLay says now is a good opportunity to increase the amount of money you’re putting into a 401K or other retirement fund as the markets are down and your money will go further. “It’s on sale,” she said. Increase your 401 contributions and “then you’ll be automatically investing into that lower market and you won’t even have to think about it.”

For anyone nearing retirement who is worried about how much their 401K dipped recently, McLay says it’s important to remember that you are not going to be using all of your money on Day 1 of your retirement. In fact, on average, people need it to last for more than 20 years, and so the markets should be able to reverse course by then and your money will once again grow.


If you want to play around with other investments, buy, don’t sell


Now is not the time to be selling off any stock you own, but to hold onto it until the markets return to normal. “Investing is like being on a roller coaster. We are on an extreme ride right now, so the last thing you want to do is unbuckle your seat belt when we are in this craziness.” If owning stocks is stressing you out considerably, McLay recommends making a note of how it makes you feel, and then, when the markets have returned to normal, referring to that note once again to remind yourself “you never want to feel like that again.” At that point, you can make more secure investments with your money.


Now could be the time to buy a home


With the low interest rates, it’s a decent time to start shopping for a home if that’s one of your goals. McLay recommends making sure you have 20 percent of the home price in cash available and that your credit score is above 750 for a better rate (the same goes if you are buying a home with a partner – your interest rate will be based on the lower of the two scores).

If you do not have 20 percent down and you are a first-time home buyer, there are options available to you like borrowing from your Roth IRA or joining a credit union. But if you do go this route, you should feel confident that you are going to be living in the home for at least seven years. Otherwise, when you want to sell your home, you’ll be spending cash to cover all the selling fees, rather than the equity you have in your home.


Save for your goals


In addition to your emergency fund, McLay recommends setting up automatic savings accounts for larger expenses that are top priorities for you. “We have clients with tattoo funds, egg funds because they want to freeze their eggs, travel funds, fur baby funds, and human baby funds.”

The way to do it is quite simple; if you would like to spend $5,000-a-year on travel, set up a “Traveling” savings account, and automatically allocate $420-a-month into it from your checking account. If you find that you can’t afford that much with your other expenses, then you may need to reconsider your goal. The one thing you do not want to do? Put the extra on a credit card.


If you own your own business, talk to your bank about the stimulus package


As banks are the ones that will need to process the stimulus package and distribute it to small business owners, they have the most up-to-date information about what you need to do.

If you are considering starting your own business, now could be a good opportunity to work on preparing for that – McLay recommends having at least a years’ worth of expenses in the bank. She does not recommend launching your own business now, however, as there is not a lot of available money out there from investors.


Re-think your expenses


As a lot of small luxuries are cut out of our lives right now – think eating out, getting our nails done, etc. – McLay recommends using this time to really consider what expenses you may feel comfortable cutting back on. Print out your last three months of bank statements, and review what you feel you do and do not need to spend going forward. “Ask yourself: do I really need that gym membership? Can I learn to cook more?” McLay asks, “Now is the time to test these things out and see what you really need to survive and thrive and where you can cut so you have more money for other things.”


Think about your sacred cows


On the other hand, you should think about what you do want to spend money on, and what expenses you are absolutely not willing to give up. McLay says for her clients that is often travel, closely followed by saving for a pet. Prioritize saving for those “sacred cows,” which often means cutting out less important expenses.

That’s where evaluating your expenses becomes a valuable exercise, because it will reveal to you where the majority of your money is going. In New York, for instance, McLay says her clients biggest expenses are Uber, Amazon, Seamless and Duane Reade – even though those companies do not represent anyone’s Sacred Cows.

“It’s so easy to mindlessly spend our money, so we want our clients to intentionally spend their money and make sure they’re spending their money on the things that bring them joy.”


Don’t ignore your finances!


No matter how bad the state of your finances may be, the one thing you do not want to do is pretend those problems don’t exist. The only way to get a good handle on your expenses and savings is to take a good hard look at it and figure out how to go forward. “It’s like stepping on the scale and knowing where things are,” McLay said, “We’ve seen it all and we’ve seen it all get fixed.”


For the full event with Shannon McLay, watch below!

The Related Life is written and produced by Related Luxury Rentals. Be sure to follow us on FacebookTwitter and Instagram for the latest events, news and announcements in your area, and tag us for a chance to be featured @therelatedlife and #therelatedlife.