Managing Your Personal Finances Through a Crisis
Over the last 100+ days since the first US Covid-19 case, Americans have had to alter their normal way of life. For some, there has been little change, for others the change has been drastic.
The combined health and financial crisis can be confusing and difficult. Navigating personal finances during this time for many has been paralyzing. As an effort to help, here are some general considerations for you during this time:
Complete a proper assessment:
How is your job security? - Soberly assess your employment during this season where more than 30 million Americans have filed for unemployment since march. No one knows how long this economic disruption will last, so plan accordingly. Has your employment been displaced? See our guide to unemployment during Covid-19 here.
How is your emergency reserve? – For such a time as this we recommend that clients build and maintain an emergency reserve. A stockpile of liquid assets can be the best form of self-insurance. Most should plan to keep a minimum of 3-6 months of living expenses on hand.
How are your investment accounts? Should you make updates? Many states are recommending residence to "stay home." Stay home is not just wise counsel to help flatten the curve, but for many “stay put” should be their investment philosophy as well. A study conducted by DALBAR, Inc. found that investors change investment strategies too often to realize the inherent market rates of return. It is in volatile seasons like this where investors’ emotions run high and they make short term changes that will hurt their long-term returns.
Source: Dalbar. Past performance is no guarantee of future results.
“Have we already seen the bottom of the market?”
“Do you think the market will go down further?”
Consider the time horizon for your investment accounts. Make long-term investment strategies, not short-term speculations.
Know what resources are available to you:
Negotiate your bills – To reduce your expenses call your creditors and try to negotiate your bills. Lenders realize the financial stress many are under and are willing to work with you to create approved payment modifications. Learn how to negotiate your bills here.
Stimulus checks - 80 million Americans already received stimulus checks from the US Treasury Department via direct deposit earlier this month. If you are eligible but haven't received your stimulus dollars check on its status here.
Accessing retirement dollars - The recent CARES act has made it easier to access retirement account dollars through loans and distributions. Eve Bell shares how your 401(k) may be impacted here.
Extended tax filing deadline - The due date to file your 2019 Federal and Oregon taxes has been extended. Luke Schultz, CPA answers questions on the stimulus bill and 2019 tax filing here.
What to do with excess:
If you are questioning what to do with extra cash, consider yourself lucky. Are you saving money without a commute, eating out, or childcare? Here are some considerations for what to do with extra cash:
Give - There are many people in need. Want ideas on how to give and to learn about the current tax benefits of doing so? See our post by Nicole Wilson, CPA here.
Build up your aforementioned emergency reserve.
Consider refinancing your mortgage - See our how to guide here.
Invest - As a part of your long-term investment strategy buy when the market is down. Global stocks are priced down to 2019 values. Will the market go down further? Maybe, or maybe not. Again, make long-term investment strategies, not short-term speculations.
Both in a physical and in a financial crisis it is important to have a plan.
Be wise, panicked decisions can have long-term negative implications.
It is never too late to get your finances in order.
