Americans everywhere are itching to get out of their homes and hit the road.
Nearly two in three Americans are making plans to spend this summer, and nearly half (48%) aim to take a vacation in the next six months, according to a recent Country Financial Security Index.
The survey found that Americans are feeling good or excellent about their financial security (62% now versus 53% in 2020) in general. In fact, Americans are feeling more hopeful about their personal financial outlook than at any time in the past five years. But before they lock in summer plans, they should consider one key factor — can they afford them?
According to Troy Frerichs, vice president of investment services at Country Financial:
1) A vaccine isn't the only thing to consider before traveling
"If last year was the year of home improvement, then perhaps this year is the year of travel,” said Frerichs. “Revenge travel will certainly be a real thing in the coming months.”
Americans are due a well-earned vacation after months of stay-at-home orders and travel restrictions. But Frerichs emphasized people should consider more than just a vaccine when booking plans, saying it’s still important to ensure you’re only spending money on vacations that you can afford.
“Don’t let vacation spending put you in debt or increase your debt, because that reality will hit once the post-vacation high has worn off,” he said.
2) Continue fostering healthy financial habits
In some ways, the pandemic proved eye-opening for younger generations. For one, they saw firsthand the impact of replacing entertainment costs, like dining out at restaurants, with more affordable choices, like cooking at home.
“It’s great to see 20% of Gen Z saving more coming out of the pandemic,” said Frerichs. “I think there will be opportunities for this generation – and all generations – to start spending more money and enjoying more leisure activities that they likely went without over the past year.”
In saving for the future, Frerichs said he encourages younger clients to “set it and forget it.” Take advantage of employers’ retirement plans, especially if they offer an employer-matching contribution. You can also talk with a financial professional to see if creating a plan that includes automatic transfers to an investment vehicle could work for your situation.
“If the money goes out before or immediately after it hits your bank account, you don’t feel like you’re missing out on anything,” he said.
3) Be wary of “over-optimism”
Although many economic indicators “certainly feel like a sign of better things to come,” he said that consumers and investors should still exercise restraint when it comes to spending.
“A general rule of thumb is to stay within your budget to avoid going into debt – no matter what spending you’re considering,” he said.
Frerichs understands Americans want to let loose and unleash some of the funds they’ve been socking away in savings. But he hopes the memory of last year’s financial hardships will encourage healthy savings habits moving forward.
“Knowing those savings were there in case things got worse certainly gave many comfort during the pandemic,” he said. “Hopefully the new saving habits stay intact.”
4) Continue thinking about the long term
Frerichs suggested checking in with your financial representative to be sure your investments are diversified.
“We’ve seen strong stock market growth since the onset of the pandemic last spring, and the U.S. stock market is at an all-time high. So, I wouldn’t necessarily want to base assumptions on above-average stock market returns over the long-term,” he said. “And, rising interest rates equate to lower bond returns, also pressuring retirement fund returns.”
Inflation, while still “contained overall,” may be a factor to consider over the coming months, he said.
5) An emergency fund is still a good idea
In the U.S., it might feel like the emergency of the pandemic is in our rear-view mirror, but that doesn’t mean it’s okay to blow through months’ of savings in your account. It can be a safety net for an unexpected one-off expense and help prevent dipping into your retirement savings.
“If you need money due to medical expenses or the loss of a job, you need to be able to take that from a liquid account vs. your investments saved for long-term goals like retirement,” explained Frerichs. “Otherwise, you could be damaging the longevity of those funds by liquidating them at the wrong time.” People with three to six months’ worth of expenses saved up are better prepared for the unexpected — and for their futures.
“A financial professional can take a look at your entire situation. They might have tools to help you develop something that fits for you and your goals,” he said.
Source: Country Financial. Written by Stephanie Walden
