ISAKOV Planning Group Blog
Friday, May 01 2020
The Importance of Financial Literacy in the COVID-19 Pandemic
As highlighted in my recent Facebook post, April is Financial Literacy Month, and the topic of financial literacy is critical to everyone concerned about their financial security and future in the era of COVID-19.
Financial literacy can be defined as an individual’s ability to understand his or her personal finances and make informed decisions about their money. In other words, can you adequately identify the strengths and weaknesses of your financial actions and planning? Have you set financial goals and set out on a path to reach (or surpass) them? Experts estimate that only one fifth of American adults are financially literate.
Granted, there is vast uncertainty with regard to income, security, and of course, health during the COVID-19 outbreak. But getting a grip on your financial situation today could not be more important. Don’t let fear in today’s climate stop you from taking the first steps towards understanding how your finances today will hold up during and after the crisis.
For so many people, the economic downturn from COVID-19 has directly reduced their income and ability to pay their bills. Improving your financial literacy today will enable you to determine whether an existing “emergency fund” will help you through the crisis, or perhaps you will need to tap into this money in the coming weeks to pay the mortgage or rent. It certainly raises once again the importance for this type of savings.
Improving your financial literacy will enable you to quickly review unnecessary charges related to your credit cards or bank accounts. It encourages you to requote your insurance policies to see if you can obtain better rates. This is very important today, as auto insurance companies are currently calculating rebates for existing customers, because so many fewer drivers are on the road as part of sheltering in place.
With so many people living paycheck to paycheck (or today, from unemployment or stimulus check to the next one), the ability to budget, take charge of debt, and to save for the future could not be more important. Financial literacy is the road out of the crisis for many Americans.
Here’s a quick set of questions to test your own financial literacy:
Improving your financial literacy will bolster your ability to weather the COVID-19 crisis, and any other challenging scenario that may happen in the future. We’re here to help. Contact the Isakov Planning Group to learn how to increase your financial literacy and take action in this difficult time.
Wednesday, April 01 2020
Getting a Big Refund Check: What’s not to Like?
Actually, the US Treasury check you received last April and paid for your 2-week summer vacation may not be the best approach.
Think of it another way: instead of saving, investing, or pocketing all that money yourself, you are giving the federal government (and possibly the state government as well) interest-free loan.
There is no benefit to this, except perhaps that it is a form of “forced savings.” With a little discipline, you can save this money yourself throughout the year.
Here’s another way of thinking about that unintended loan to Uncle Sam. Not only do you not get any interest back, but the value of that sum you got back is actually less than what you gave them during the course of the year. That’s how inflation works. If you overpaid your income tax in 2019 to the tune of $5,000, the refund check that you receive in 2020 is actually only worth $4,936.92 because of inflation, according to the Bureau of Labor Statistics’ inflation calculator.
Isn’t this money much better in your hands week after week? For some people, it could make the difference between living with far less stress and worry about paying their bills.
At Isakov Planning Group, our advice is to change the amount of your withholding (the W-4 form) so that more of your money is in your wallet and less needlessly goes to the IRS and state treasuries. Next year’s refund will no doubt be smaller, but you will have control over how that money grows throughout the year.
Maybe that summer vacation is still the goal. If you are careful about setting aside savings automatically, you may still be able to pay for it, and have some extra money left over that would have been in the government’s hands.
If you received an unusually large tax refund from the IRS, contact me at the Isakov Planning Group. We’ll make it easy for you to keep that money every paycheck and make it work for you.
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