- Cut living expenses. In times when we are not worried about negative financial outcomes, we tend to spend more extravagantly. Often, the things that we spend money on are things that don’t actually provide us with a lot of psychic value, or that we perceive as too onerous to cut out rather than just ripping the Band-Aid off and doing it. I recommend people look at the 12 months BEFORE lockdown and go through their bank and credit card statements. For each item that they spent money on, they should ask if they REALLY need that. Imagine a movie with a 70 year old you as the main character. That will help you plan for your future and keep that future you in mind rather than just living for the day, giving you more accountability when you go through the exercise. If you find that you’re spending on something that you don’t NEED to spend on, try cutting it out for two months. While you may think that it’s going to be hard to live without that item, in reality, we adjust very quickly, and you will probably find that for most of the items you cut, you never really needed them in the first place. If, in two months, you’re miserable without something, then bring it back into your life. Also, with your new, sleek, streamlined spending, don’t fill the vacuum with other spending! Instead…
- Build your emergency fund. Emergency funds are meant to be the padding in a highly downside event – a job loss, a major medical expense, a massive repair to your home or car, etc. Research shows that for the 2008 Great Recession, the 90th percentile of unemployment caused by the recession was 16 months. That’s why I recommend having 16 months of expenses in an emergency fund. Yes, that seems like a lot, and you may not get there overnight, but this is like insurance. Your goal is to never need to make a claim on your insurance, but if you wind up having to make a claim, you’ll be extremely glad you had it.
- Reevaluate career and financial goals. Given the skyrocketing unemployment claims because of the coronavirus pandemic, no job is truly safe. That’s why it’s a good time to evaluate your career goals. What will you do if you get laid off? Are your LinkedIn profile and resume up to date? How strong is your network? What do you want to be when you grow up? Is the brass rung something you still want to strive for, or is the juice not worth the squeeze? I wouldn’t advocate going out right now and trying to start a new career if you already have a job, but when the pandemic is over, hopefully, you’ve already gone through the thought exercises of how you want to define meaningful work. This also applies for your financial goals. Think about what success in life looks like. What do you want to look back on in your final days and be happy that you did? Write down those goals, set times to them, and then sign that goal sheet at the top of the page, and post it somewhere visible. That will become your contract to yourself for achieving those goals.
- Continue to invest. Once you’ve set your financial goals, you may want to work with an advisor (I recommend an hourly Certified Financial Planner) to figure out how you’re going to achieve those goals. Then, after you’ve set enough aside in your emergency fund, automatically invest on a regular basis into the accounts that you and your advisor decide are best for you (e.g. 401k, IRAs, taxable accounts, 529s, etc.). Also, aim for low cost funds and ETFs, such as Vanguard.
- Revisit your investment strategy. This one can be pretty simply described as “don’t overthink it.” If you have a strategy of periodically and automatically investing in low cost investment choices, then, unless something changes in your life or your goals, stay the course. A lot of individual investors are great at selling low and buying high, and committing to and executing an automatic investing plan is the best way to ensure that you don’t fall prey to that trap.
While the coronavirus induced recession is forcing all of us to reevaluate our financial behaviors with a close eye for detail, these are habits that will serve us well whenever life has returned to normalcy, which, hopefully, is sooner rather than later!
Jason Hull is a Dallas, Texas based Certified Financial Planner with Hull Financial Planning.