We are in the midst of not only a global pandemic and health crisis due to COVID-19, but also a financial crisis. Due to health and safety restrictions resulting in state stay-at-home orders and business closures, unemployment in the US surged from 4.4% in March 2020 to 14.7% in April as 20.5 million people lost their jobs. Hopefully, many of those job losses will be temporary and people will be able to resume their employment after companies re-open when it is safe to do so. But many will remain unemployed as their employer may have lost too much revenue during the quarantine to resume operations at the previous level. Some industries, like oil and gas, have had massive layoffs and some retail businesses, like J. Crew, are declaring bankruptcy.
Perhaps you have maintained your employment and have migrated to telework with your whole paycheck intact. Perhaps you have seen your income decreased as your business model has changed and your revenues decreased. Or perhaps you have seen your paycheck entirely disappear during this crisis. Wherever you fall on the financial spectrum, we all are experiencing some financial hardship. A certain recession impacts all of us as the stock market falls and decreases individual investment and retirement savings accounts, the costs of certain goods (such as meat and eggs) are increasing as industries experience shortages and supply chain issues, and high unemployment means lower retail sales which continually impacts retail stores and can result in more layoffs.
So what are you to do while you attempt to navigate this uncertain financial time? How can you get yourself into the best place you can amidst a financial crisis? These four easy steps can help you move forward with financial confidence.
Inventory Your Assets and Liabilities
Any business that doesn’t take stock will soon find themselves bankrupt. Same for individuals. Put your quarantine time to good use and draw up an inventory of everything you own (assets) and everything you owe (liabilities). How much money do you have in all your accounts? Look at checking, savings, CDs, and investment accounts. In an emergency, how much money can you get your hands on? Can you borrow against accounts which have penalties and/or taxes to liquidate (IRA’s, 401k’s, etc)? What interest rates are you earning in your accounts? Could you take out a home equity loan or personal loan? Remember, you do not need to liquidate all your assets today. You only need to take stock so you are aware of how much you have and what your options are in the event that you lose your income and need cash to pay your bills. And in that case, you would only liquidate or borrow against what you need to get through the immediate crisis and pay for essential living expenses. This is not a time to panic and hide all your money under your mattress. The market will eventually recover and leaving investments where they are is the best move long term as long as you don’t need the money to live off of today.
Review Your Income and Expenses
Now is the time to really learn what is a need and what is a want. Do you need toilet paper and groceries? Yes. Do you need to go quarantine shopping on Amazon prime for gadgets for an expensive new hobby or shop for new clothes just because you want to daydream of the day you will wear them outside again? Probably not. If you are concerned that your income could be diminished in the future, now is the time to prepare to diminish your expenses to keep them in line with your income. Review your monthly costs and look at what you can live without. Perhaps you don’t need those additional premium movie channels, an expensive gym membership, subscription boxes, frequent meals at restaurants and take out, etc. Look over each monthly cost and upcoming purchase and asn yourself if it is a need or a want, then consider whether it is important enough to keep should your income get cut. Cutting some expenses now can give you some additional money to put into savings, and planning what expenses you will cut should a crisis hit gives you a game plan to deal with an emergency.
Review Your Beneficiaries
No time like the present to make sure your affairs are in order. Since you are reviewing your financial accounts anyway, check to make sure that the beneficiaries of those accounts are updated. If the worst thing happens in this pandemic and you pass away, you want to make sure your assets are going to the right people. If you don’t have a will, now is a great time to get one drawn up. If you have gotten married, divorced, or had children since you last updated your beneficiaries they may be out of date. It is usually a very simple process to change the beneficiaries of your accounts (it’s usually just a single form or you can submit it online) so go ahead and take care of it now before it’s too late.
Review Your Investments
How have your investments performed over the last few years? Granted, 2020’s downward decline may have tanked them but over several years have they given you returns you are happy with? Are they invested in assets that are a match for your level of risk-aversion? Some people think that they like risk and are willing to take it on in exchange for a potentially bigger reward and invest in risky assets when the market is going up, but their true colors come out when the market is in decline and they get scared and move their funds out of the market. Use this time to rebalance your portfolio to match your level of risk-aversion and work with your financial advisor to find the right balance for your needs.
In the midst of this financial and health crisis, remember to take a deep breath. There are many things you can do to care for your health and financial well being. In addition to practicing social distancing and washing your hands, take these four steps to give your finances a check-up and get prepared for any negative financial impacts your family might feel. Use this crisis to organize your current situation and put yourself on a solid footing for the future. This crisis will end and you will have a future, so prepare for it.
