Money in the Media #32: Finance in a Pandemic

Op-Ed: It’s not time to panic, it’s time to plan your finances during coronavirus pandemic

With so much uncertainty in the world, it can be absolutely daunting to even think about finances. Unfortunately, this makes it even MORE important to delve into your current financial situation and plan for the future. This thought is the inspiration for today’s Money in the Media Finance in the Pandemic discussion. Today’s article is from CNBC: “Op-ed: It’s not time to panic, it’s time to plan your finances during coronavirus.” This article is written by Dave Wilson, a senior financial advisor for Watt Capital. When times are tough, I find that knowing what I’m up against and having a plan are what calms my anxiety. Of course, if you find this even tougher to do on your own, reaching out for help is always a great idea.

Per usual, I’ll note the areas that I agree and those that I disagree with this article. Some rules of thumb are good places to get started, but I recommend tailoring them to what works for you. Everyone has different goals and a different lifestyle. So, be careful trying to fit into a box that will not help you build the life you want and deserve.

Manage Your Rainy Day Fund

Having a rainy day or emergency fund is absolutely key for developing your financial security. The general rule of thumb is to have 3-6 months of expenses available in a savings account for emergencies. What I would add to this is to check your expenses for items that could stand to be cut if an emergency did arise. I recommend that my clients have 3 months of savings for their normal budget, but know what items they could cut in an emergency. Then note how much longer their emergency funds could last if they cut the non-essentials in tough times.

For example, while we love going out to eat once or twice each month but, we could cut this if we needed to. That would save us ~$80-100 each month. Another item that we could cut is spending on clothing and haircuts, for which we allocate $100/month in our sinking funds. Just in these two items, we would reduce our monthly expenses by $200/month.

After that, he recommends saving at least 20% in qualified retirement accounts, IRAs and other investment accounts. This is a great starting point for how much to save. Where and how much money to save will vary based on each person/family’s long term goals.

Review the CARES Act

With the stimulus checks that wen tout in April/May of this year, there are many who were eligible for $1,200 or more. This specifics behind the stimulus checks and more, I have added to my COVID-19 resources page. For now though, here is a quick summary of the stimulus check eligibility:

The CARES Act also allows individuals to take withdrawals from a 401K or IRA plan without incurring the traditional 10% penalty. This penalty occurs when withdrawals are made before age 59.5. While this option is available, I wouldn’t recommend it unless it is an absolutely dire emergency. The implications from a tax and retirement perspective can be very high. Any withdrawals would greatly decrease the compound interest accrual over the course of your working career. This would lower overall balances and potentially force you to have to work longer to make up the deficit.

Weigh the Real-Estate Risk

In most budget, rent or the mortgage is the largest expense. During this trying time, many landlords may be able to

• Put rent payments on hold.
• Apply security deposits towards rent due.
• Forgive rent payments altogether.

Additionally, many mortgage companies are willing to allow pay deferment or interest only payments through the end of 2020. Call your mortgage provider to see how they can assist you and specifically mention that you have hit financial hardship due to COVID-19.

Update Cash-Flow Projections

Generally, I agree with the author’s assessment that as much money as possible should be kept aside for emergencies. However, as unemployment continues to rise, even months later, it may be time to evaluate current spending habits, or cash-flow projections. This goes back to what I had mentioned earlier about determining what budget items can be cut. The author recommends the following steps be taken:

1. “Take an hour to write your most important values (family, education, philanthropy, etc.) on sticky notes, then narrow them down to the five most important.
2. Rank and record your top 10 financial goals (retiring early, leaving an inheritance, buying a home, etc.)
3. Create a monthly budget. Be sure to categorize all of your historical monthly expenditures.
4. Going line by line, determine which expenditures are incongruent with your (a) values and (b) goals and cut them out.”

This is a good set of steps to take regardless of being in current financial hardship. However, during times of financial struggle, it becomes even more important.

Check in with a Trusted Financial Advisor (or Coach)

If the above steps to set a budget sound daunting to you, working with a financial advisor or coach can make all the difference. Financial professional can do things like:

• Run various scenarios for your budget and money.
• Help you to build out a financial framework that works for you.
• Lay out the options that are available to you or could be available to you in the future.
• Plan for long and short term goals for you and for your family.
• Create money habits that build your levels of financial security.

Proactive planning that takes into account the long and short term goals in your life will set you up for success regardless of your definition of success. This is true even as scenarios and plans change over time. Actively thinking through and laying out your options is what counts.

Plans are nothing, but planning is everything.

Dwight Eisenhower

How are you handling your finances differently during the pandemic? What are you planning or do you need help with your planning? Did this article: “Money in the Media #32: Finance in a Pandemic” help you? Let me know in the comments below!