“When we are no longer able to change a situation, we are challenged to change ourselves.”
Viktor E. Frankl, Man’s Search For Meaning
Our values are tested during a crisis. We have learned that we need to make certain changes to our lives. As such, we have adapted our social relationships, our working lives, distance learningl to preserve our health and that of our communities. Crisis breeds uncertainty which none of us like. We don’t know how long this crisis will last before we can go back to normal. What is certain is that there will be more crises in our future.
To better deal with the anxiety, focus on what you can control and be true to your long term values. Use this time to reflect on what is important to you and your family. Take measure on what you have learned during this crisis about yourself. Some of the adjustments we are making will be transformative. Besides healthy handwashing, maybe you have experienced telemedicine, distance learning or remote working, options that are likely to grow.
Increased Financial Stresses
Many families are realizing greater financial stresses during this pandemic. The economy is in a downfall, financial markets may not yet have bottomed, and job losses are rising.Take some steps to review and strengthen your financial priorities and goals.
After all, April is Financial Literacy month. COVID19 has provided new meanings to our money values. While not all of our goals relate to money, it may be more about what you value. You may need better habits to accomplish your goals. Consider what changes you can make as a result of this crisis.To better achieve our short term and long term financial goals, we need better habits.
7 Steps To Improve Your Finances:
1. Emergency Fund Is A Necessity
Building an emergency fund for unforeseen events is essential. The coronavirus is a black swan event of major magnitude. A black swan event by its very nature is an unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences. We have had major flu outbreaks but the impact of COVID19 brings more comparisons to the Spanish flu in 1918.
While no one could have predicted this pandemic, we should always have access to liquidity to pay for our basic living expenses. Establish an emergency fund of at least 12 months of your living expenses and learn where to invest it. Your fund should be a big enough cushion to pay your monthly bills and costs such as food, rent or mortgage, utility, health care, car, property taxes, and pet care. Previous guidance of 3-6 months seems woefully inadequate during these times.
This is not wasting assets as some think. Instead, it is preserving your future assets prudently. Without such a fund, you may have to borrow to pay your rent and other basic needs. File for unemployment insurance in your state which has been boosted in your state. Plow any incremental savings into your fund.
2. Make Savings A Habit
Yet we all have excuses as why we don’t need to set up an emergency fund account. You believe you have a stable job, your parents will help you out or you can always use your credit cards. You may not be able to fathom putting one month of savings, let alone the recommended one year of basic living expenses in an emergency fund. It could simply be that you are procrastinating and intend to have one. Unfortunately, you can’t time your financing needs for the unexpected times you need cash.
Start saving a little at a time. Saving is always a good financial habit. You should budget for 10%-20% of your income to go into savings. Part of those dollars should go towards unexpected needs. With social distancing (really physical distancing), you are likely to find that you have more savings because of less entertaining, not eating out and canceling vacations.
Life will eventually go back to normal, hopefully soon. Why not put some of those savings into your emergency funds? The rest of thost funds should be distributed to paying down debt, ongoing retirement contributions and careful investing in the market. Here are some ways to save without changing your lifestyle significantly, ” 25 Ways To Save Money And Feel Good About It.”
3. How To Pay Off Debt
As a result of the coronavirus, there may be some help regarding different kinds of consumer debt. Recently, government actions have added some flexibilities for temporary forbearance or payments of student loans, mortgage loans, personal loans, car loans, or possibly credit cards. Additionally, if you own a small business with less than 500 employees there may be benefits for the owners and employees if you abide by restrictions. However, you need to understand what the rules are. For example, there may be mortgage relief associated with the coronavirus. Now would be a good time to refinance your mortgage and othr debt at lower rates.
Check These Resources For Help
However, it is best to take a look at the Consumer Finance Protection Bureau for advice. Take a look at the Small Business Administration or SBA website for their guidance, especially for disaster loans if you are a small business owner. Those who are having trouble paying your bills or loans should review America Saves has a wealth of information here. If you have federal student loans, the government has placed your loan during this emergency into administrative forbearance from mid March 2020 until end of September 2020 with more information here.
Generally, you should adopt a plan to keep your debt levels at manageable levels. I advocate reducing loans with the highest loan rates first. On the other hand, if reducing small amounts of debt works better for your motivation, then do that. Automate payments to avoid late payments. Pay your credit card balances in full, not just the minimum. Spend within your means to lessen or eliminate your borrowing needs and avoid having to use your credit cards excessively.
4. Stay Vigilant And Check Your Credit Reports
With every crisis, financial scams increase. Phishing and investment scams rose during the 2008 financial crisis and coronavirus outbreak is no exception. Scams like phishing involve the sending of emails and texts purporting to be from reputable companies. They are inducing you to provide personal information, like social security numbers, credit card numbers and passwords.
Both the FTC and FDIC have issued alarms to consumers to stay vigilant. Monitor your credit reports to find errors, and to find ways to improve your FICO score. This will help put you in a position to have financial flexibility when needed.
5. Continue Your Retirement Contributions Or 529 Savings Plan
If you lost your job or are on furlough, you may not be able to make the same contributions to your 401K, Roth IRAs or 529 Savings Plan. If you are able, continue to do so without interpretation even if in smaller amounts during this time. Remember that these accounts benefit from tax-deferments and compound growth. Avoid withdrawing money from these accounts as there may be penalties beyond the loss of growth. Hopefully, we are in a short term crisis and you don’t want to damage your long term growth.
Generally, save for retirement through tax advantaged employer-sponsored benefits. Separately open up an IRA (preferably a Roth IRA) for more retirement savings.
Set up a 529 savings plan as early as possible for your newborn. This can help you and your child avoid borrowing later on for their college tuition.
6. Investing During A Down Market
Does an economic downturn mean you should sell stocks? Not necessarily if you have a long term strategy. Financial markets go through corrections, bull and bear markets. Selling during economic downturns will provide actual rather than unrealized losses. Many times that is the worse time to sell your securities. That said, when stocks do go up, it is a good idea to at least trim some of your holdings in these kind of markets if you are risk intolerant.
Take a look at our stock indices from peak to trough during the Great Recession:
Dates S&P 500 DJIA NASDAQ
10/09/07-Peak $1,565.15 $14,164.53 $2,803. 91
03/09/09-Trough $ 676.53 $ 6,547.05 $1,268.64
Percentage % -56.8% -53.78% -54.75%
By mid May 2009, the S&P 500 was up 30%, rising over 60% by year-end 2009. Although you can’t pick the exact bottom of the markets, you can go bargain shopping for stocks that have undergone corrections or are in bear territory. For example, tech stocks have been strong leaders in the market but corrected during US-China on-off trade talks (remember that?).
What Can We Expect
Jobless claims are soaring and will continue for at least several months. The St. Louis Fed has pointed to a 32% unemployment rate by second quarter 2020 based on credible back of the envelope calculations. Companies are reducing their upcoming earnings forecasts because of reduced demand. Our economy has been shocked due to disruption but the Fed continues to proactively add liquidity to our markets as the federal government has added fiscal stimulus and likely to add more to our markets.
Could this mean we can bounce back quickly from that wicked unemployment rate and if so, could we miss a stock buying opportunity? No one has picked the bottom unless they called it retroactively. (Wink, wink). That said, for those who have some available funds, it could be a good time to invest money in stocks so long as you have a long term horizon. Use small amounts and diversify your holdings if you are buying individual stocks. Better yet, research and find some low cost index S&P 500 funds that mirror the market.
7. Practice Gratitude More…It Helps Our Spirits And Our Finances
“Be thankful for what you have; you’ll end up having more. If you concentrate on what you don’t have, you will never, ever have enough.” Oprah
We still can stay connected during this crisis, if not physically at the moment. Expressing gratitude to loved ones, colleagues and our heroes help us, let alone those who deserve it. Who hasn’t felt moved by strangers helping others, checkout at the grocery store, or stories we are reading on the Internet. We have new sets of heroes to thank such as bus drivers who we usually walk past, doctors and healthcare workers who risking their lives, construction workers and so many more.
- Simply smile at what you have in terms of family, friends, a job or career you enjoy.
- Send old fashioned “thank you” notes to those whom you are grateful to or for having them in your life.
- Keep up a gratitude journal to save those great moments.
- Practice saying and thinking about gratefulness in a meaningful way.
I admit that there are times when I focus too much on life’s burdens that feel like they are overwhelming me. Exercising your ability to switch gears to counting your blessings over burdens often works for me. With two teenagers, it can be challenging to have some quiet moments for yourself. However, I find it can work for the good.
Sometimes losing a loved one makes you more grateful. It may run counter to the most difficult experiences. My mother lost her whole immediate family and extended family except for my Uncle before the age of 20. Yet, she was always grateful for her life and that of her brother’s. It gave her the chance to have her own family.
Having a traumatic experience often makes us grateful. We truly are going through a difficult time sharing a common enemy that has no political affiliation, no color, ethnicity, or religion.
Let’s be kind and grateful to each other. By the way, did you know that gratitude can lead to better finances? Really, read about that here.
Financial stresses have increased for many Americans as a result of the coronavirus. Clearly, we are entering a period of an economic downturn and increased uncertainties. It is a good time to focus on what we can control rather than on the uncertainties. As April is Financial Literacy month, we reviewed 7 steps to improve your finances. Think for the long term. Practice gratitude to our loved ones which helps our spirit and patience. Stay healthy!
We appreciate you taking the time to read our blog and welcome any of your comments and thoughts!
With a passion for investing and personal finance, I began The Cents of Money to help and teach others. My experience as an equity analyst, professor, and mom provide me with unique insights about money and wealth creation and a desire to share with you.