There’s a whole lot going on in the world today. While no crystal ball exists to tell us how the future will play out, we don’t need to panic, rather, we need to plan. We like to think of this as making some lemonade out of lemons. Here are 5 things to consider which will help you stay on course despite the potential for more storms ahead:
- The first priority is to make sure you have an emergency fund. This means cash on hand. One positive impact of quarantine is that many people are spending less money. While that’s not necessarily good for supporting businesses, it is good for your own personal bottom line, as well as knowing what your baseline spending looks like. We recommend having a minimum of 3-6 months of necessity spending in cash or cash equivalents. For retirees, we recommend upwards of 12 months of expenses in a cash reserve. A high yield money market is a great place to keep that cash. The downside at the moment is you might only be making a little more than 1% on that cash, but it’s still a lot better than the close to zero percent in a checking account.
- The next priority is to update your cash flow projections. This is money coming in and out of your life, otherwise known as… your budget. We know “budget” is probably not your favorite word but it’s a good idea to review (or create one!) when your personal economics change. The basic rule is to make sure your outflow does not exceed your inflow. Additionally, you want to maintain your savings and investing, even in turbulent times. If cash flow analysis really just isn’t your bag, let us know, we can help!
- We talked about low interest rates above, and while they aren’t so nice for your cash savings, a low interest rate on a loan or mortgage can more than make up for that! Now is a great time to evaluate your interest rate on any borrowed funds and see if you can lock in a more favorable rate. What’s it worth to you? Well, for example, the difference between 3% and 4% interest on a 30 year mortgage is around $20,000 of additional savings for every $100,000 borrowed!
- Rebalance your investment accounts. This is a big one. While being a few points off of your target allocation might seem like no big deal, this is actually the only way we recommend “timing the market.” Rebalancing allows you to buy low and sell high. Over time, rebalancing can make a big difference in your invested funds.
- Perhaps quarantine has given you a little extra time on your hands? If you haven’t reviewed your estate documents and beneficiary designations recently this would be an excellent time to prioritize them. Your will, living will, and power of attorney documents are very important items in your personal finance arsenal. Many people end up putting this off for a rainy day – well, why not today? These documents are critical for making sure your estate is distributed to your wishes as well as planning for possible incapacity. Along with this, take a few minutes to review the beneficiary designations on your accounts, and also make sure all of your assets are titled the way you wish (individual versus joint, etc.) An estate planning attorney can help you with all these things.
In the end, taking care of a few simple planning items can actually leverage you to come out of a crisis ahead of the game! (Yes, lemonade instead of lemons!) All it takes is a little bit of time, forethought, and the perspective of seeing the forest through the trees. While this new normal is certainly intense, it is temporary. Need help with anything on this list? Schedule a call or send us an email and we are happy to assist!