- Staying home during COVID erased whole categories from my budget, like travel and clothes.
- I had an extra $300 to $500 a month available, so I decided to use it to build wealth.
- I’m building up my emergency fund and retirement account, and investing more every month.
- Get a second opinion on your retirement plan from an advisor. Set up a free virtual consultation today »
A couple of months into the pandemic I realized that my budget no longer made sense. I had categories on there that quickly became extinct. The cash I had allocated for brunch with friends, weekend excursions, local activities, and even for new clothes had gone completely unused because those were things that I couldn’t do at the moment (especially while we were in a full shutdown in New York City).
I started to see that I had around $300 to $500 a month that I had previously carefully budgeted for, that was sitting idly in my savings account. I figured, rather than just leave it there or add it to other categories of my budget, I’d use it strategically to benefit my overall financial portfolio and future planning.
Here’s what I did with the extra monthly cash from my budget that went unused in 2020.
1. Filled up my emergency fund
It had been a year or two since I did anything with my emergency fund. After getting laid off from my full-time job in 2016 and becoming a full-time entrepreneur and freelancer, I spent time regularly adding to my emergency fund, since working for myself meant more financial risk. After I had enough money in that fund to last me six months, I decided not to add a penny more.
But when the pandemic hit and I had to tap into that fund a little bit to cover bigger bills (such as rent and a few health bills), I decided to use some of my unused budget cash to get that fund back up to the amount I’d had in it pre-pandemic. Every month, I added $50 to $75 to my emergency fund and by the end of the year, I had replaced all the cash I took out.
To keep my emergency fund growing (since I feel I’m even more at risk of needing it as an entrepreneur and freelancer in 2021 with the ongoing changes caused by the pandemic), I’ve committed to contributing 25% of any unused cash from my 2021 budget to this fund.
2. Contributed more to my retirement account
Contributing to my SEP IRA retirement fund has been a slow process for me. I only started this retirement fund a few years ago, but it’s something I’ve wanted to make a priority. At the moment, I contribute a set amount every month.
I have a lot of work to do to get my retirement fund where it needs to be, so I decided to add an extra $100 to $125 a month from my unused budget cash. This gave my account a significant boost by the end of 2020.
3. Added more money to my investments
Putting more money into my taxable investment accounts hasn’t been a priority or even something I did consistently. But in an effort to build long-term wealth in those accounts, I decided to set a monthly goal of depositing between $100 and $125. I’d like to be able to rely on the growth of my investments down the road, so I feel good about contributing more regularly now.
By taking leftover cash that I would have spent on fun activities or travel in 2020 and using it to fuel my financial goals, I’ve improved my money strategy and even gotten a clearer picture of the changes I need to make to keep up with my goals. It also showed me that even when I start spending money again on “fun things,” I need to carefully re-do my budget to make contributing to my emergency fund, retirement fund, and investment accounts more of a priority.
Disclosure: This post is brought to you by the Personal Finance Insider team. We occasionally highlight financial products and services that can help you make smarter decisions with your money. We do not give investment advice or encourage you to adopt a certain investment strategy. What you decide to do with your money is up to you. If you take action based on one of our recommendations, we get a small share of the revenue from our commerce partners. This does not influence whether we feature a financial product or service. We operate independently from our advertising sales team.
Source: Read Full Article