How to plan for uncertainty during a time of, well, a lot of uncertainty.
As if a global pandemic wasn't stressful enough, we are also trying to make sense of how all of this uncertainty, this closure of industries and economies, and market volatility (volatility in a mostly downward-dog direction) will impact our personal finances. We hope to provide some insight and comfort on this stressful topic.
No, it's definitely not too late to start planning. Carve out some time to hunker down and go through your personal finances. It's not too late, but it also should not wait much longer. Regardless of your personal or financial situation, everyone should be evaluating their personal finances right now. And can we assume a lot of you are at home these days with a little extra time, and already caught up on Peaky Blinders and Stranger Things?
Have a partner? Talk to your partner. The impact of COVID-19 on our lives is a "life changing event". Any time we are dealing with big changes in our lives, it's an important time to revisit our personal finances. If your finances are handled in a joint manner with a spouse or partner it's important to cover the financial decisions and emotional decisions around spending and your balance sheet as a team. Remember, no "I" in team.
Cash is king, evaluate your emergency cash reserve. Understand exactly how much you have in cash right now compared to what you spend each month, to then understand how long this cash will last you. Remember to include bills that you have outstanding and due in a few weeks, like any substantial expenses you put on your credit card earlier this month that you have to pay for when you pay your credit card bill at the end of this month.
Yes grasshopper, it's time to actually create a budget Look at the inflows you have coming in and the expenses you have going out each month. Of the inflows, how certain are those? Is a majority of your income coming from inconsistent gig projects or a from a super stable W2 employer? As scary as it may seem, do consider how stable your income is and then plan accordingly.
Understand your needs, wants and savings When we think about our expenses, we like to classify them as needs, wants and savings. The needs cannot be adjusted too easily. We think of these as mortgage, rent, basic food, health insurance, a car payment. The wants are easier to trim quickly and something you can go without, like what you spend on carryout, excessive groceries, clothes, online shopping, subscriptions (I mean, no, don't cut netflix right now... we might classify that as a need these days). Savings are things like a 401k contribution, savings to an emergency cash reserve, a child's 529 college savings pan, aggressively paying down mortgage principal. The savings bucket we don't like to decrease because we're such fans of savings, but if you've trimmed all the wants you can and you cannot decrease the needs much more, you may be forced to temporarily decrease some savings. But just remember, as soon as you can, turn those automatic savings contributions back on and if possible, make up for missed contributions.
Revisit your plan to pay off debt. Get a handle on paying off debt, but recognize that some debt providers are being creative, forgiving and allowing late payments without penalties. In response to COVID-19, federal student loan interest dropped to 0% for at least 60 days (as of March 13), and you can request an interest free pause on payments. Look closely at this and replan.
Have investments? Do not make emotional decisions! It is not time to sell your investment holdings while they are in a decline. The lesson around your investments at this time is to notice how you feel during this heightened economy. If checking the markets every day keeps you up at night, maybe consider not doing that. Selling low is not the right decision.
Stay calm, knowledge is power. We know looking at a cash reserve and budget is not super fun to everyone. Sometimes when looking at our own personal finances, we too want to put our heads in the sand until it all goes away, but now is not the time to do that. The more you can understand about your monthly cash flow and plan for various scenarios (good, bad and worse), the better off you will be able to handle uncertainty, and the better off you will sleep at night.
Final thoughts before we leave you to it...
Many banks are waiving fees, and asking for people with hardships to contact them directly. Likewise for small business owners, many vendors are doing the same. Need some assistance? By all means, ask! Humanity is good and we're finding people want to help when they can.
Worried about your tax return? #Breathe. The federal tax filing deadline has been extended to July 15, 2020. State deadlines may vary.
Looking for more? The Pocketnest app is available for iOS! Download Pocketnest and get your finances in order—in just 10 minutes a month! No jargony finance-speak, pricey fees or in-person meetings required. Download now!
Have questions? We love your questions! Email us at firstname.lastname@example.org