We haven’t seen a pandemic like this since the flu pandemic of 1918. Most of us, likely have never had our lives as disrupted as they are now. Virtual meetings, 6 ft social distancing, and canceled future travel plans have all affected us. The novel coronavirus COVID-19 has caused many people to understandingly questioning their finances as well. This is not the time to hide behind fear but to rise above it. Time to get started.
“He who is not everyday conquering some fear has not learned the secret of life.”– Ralph Waldo Emerson
Take Stock Of Where You Are
To know where you want to go you must understand where you are at. Start with your net worth – add up your assets and subtract your debt. An easy way to do this is by using one of the various financial aggregator tools such as Mint, Right Capital (our financial planning software), or use an excel document like a finance wizard.
Next, split your expenses by variable and fixed. Variable expenses change from month to month, whereas fixed expenses do not. This is important to do. 1. It allows you to see your spending habits 2. Shows you what you may be able to cut if the budget gets tight. You can download our Spend Less than You Make Plan to do this.
Warning: You may be surprised at what you are spending your money on.
Boost Your Emergency Fund
After you have gathered this information, the next question you should ask yourself is how reliable is this income. How secure is my job? How about your partners? Essentially, the question you should be asking is what will happen to my income.
As a reminder everyone’s situation is a little different, however, a typical rule of thumb is to save a minimum of 3 months of expenses or 6 months, if you have high confidence in your job security. Alas, during these uncertain times, you may feel the need to have even more on the sidelines. This is fine to do. Place this money in a checking or savings account and only touch it during rainy days.
Hope For The Best, Prepare For The Worst
When life gives you lemons, you make lemonade. Natural disasters and pandemics remind us of what we need to protect. One source of protection is insurance.
Many people think about insurance when they are alive such as health or vehicle coverage, however, have you thought about what happens to your dependents after you die. Since this analysis is different for everyone, one should make sure that those who rely on you will be taken care of after your passing. This is most popularly done with life insurance.
Set up some time to get your estate planning documents in order. Yes, many people tend to procrastinate on this one. This can be done by working with an attorney. Many companies include these services in their legal benefits. Take a look at yours.
Keep Calm And Stick To Your Investment Plan
For many people, this may their first time seeing this type of stock volatility. The US stock market has been very volatile during this 2020 pandemic. Falling more than 20% in March. The market has since recovered back to the pre-COVID levels. This was one of the quickest run down and run-ups in history. Like past market drops steadfast investors who did not sell, were rewarded for their discipline.
Stay diversified. Asset classes perform differently under various market conditions. A prudent investor should develop a portfolio based on their risk tolerance, with a variety of asset classes, expected returns, and maturities. Done correctly, this can lower volatility, however likely to lower your return. This can be done by a financial professional or by purchasing a low fee index ETF or mutual fund.
Feel free to reach out if you have any thoughts about this article or share with a friend.
Stay the course. Your future self will thank you.
-Mike
Disclaimer: This article is for informational purposes only and is not a recommendation of WealthU Advisors, Michael Uehlein. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. Therefore, it should not be assumed that future performance of any specific security, investment product,or investment strategy referenced in the article, either directly or indirectly, will be profitable or equal to the corresponding indicated performance level(s). No portion of the article shall be construed as a solicitation to buy or sell any specific security or investment product or to engage in any particular investment or financial planning strategy. Any reference to a market index is included for illustrative purposes only, as it is not possible to directly invest in an index. Indices are unmanaged, hypothetical vehicles that serve as market indicators and do not account for the deduction of management fees or transaction costs generally associated with investable products, which otherwise have the effect of reducing the performance of an actual investment portfolio.