Question of the Week
What should we be doing with our money during this pandemic?
Happy Five-Minute Friday all! A lot has changed in a week, huh? For many of us this was our first full week of social distancing. If you’re like the people I’ve heard from recently, you’re uneasy about the prospect of several more weeks of it.
You may also be concerned about your money.. You’ve likely been hearing many different things about getting $1,000 checks in the mail, filing for unemployment, sick pay, suspending mortgage payments, etc. It’s hard to really know what to focus on.
As always, it’s best to focus on what you can control. Here are seven steps my clients are taking to help bring some order to this time of uncertainty.
To me, this is always the first and crucial first step. Take a second to sit down and assess what’s coming up for you right now. Carl Richards sums it up perfectly: “Sit there. Do nothing. Feel it. Be aware of it.” After a 10-year healthy and thriving economy, this may be the first time that you’re really facing this kind of uncertainty. What does it bring up in you? What money mindsets come to the forefront (scarcity, abundance)? How would you like it to be? Don’t worry about solutions. Just note and write down what you’re feeling.
Now we get to some solutions. Assess where you are. For my clients, the fundamental things we keep track of are net worth, cash flow, and their priorities. If you’re cooped up at home, you may have some extra time to dig into the details. What resources do you have at your disposal right now? How much do you have coming in and going out every month? What have you found to be essential? What can you live without? Knowing how much money you actually have and need may provide assurance that you’ll be okay. This step will also help you in the steps to come.
Now that you’ve done your assessment of your current resources, take a look about what you were feeling. Do the feelings match your current situation? My therapist loves the phrase “feelings are not facts.” Many clients have told me recently that they are super thankful for their emergency fund. Worried that it’s not enough? Even in a pandemic, you can still be mindful of what you’re spending. One small silver lining: staying at home is relatively inexpensive. You’re already probably saving money on variable expenses like going out, entertainment and Lyft/Taxi/Uber rides. You can start shoving that money in an emergency fund to jumpstart your savings.
Another way to potentially increase your savings is refinancing. Many people are taking advantage of lower interest rates with some 30-year mortgage rates dipping below 4%. . One couple I work with is saving $700 a month overall on the mortgage payment. If you’re planning on staying in your home a while, start shopping for rates that are lower than your current one. Make sure to shop the rate and closing costs, as many lenders tend to hide the closing costs inside the new mortgage.
If you already feel secure in your savings, now could be a good time to invest. What? Now? When markets are going up and down in 1,000 point swings? Your instinct may be to cut back on investing during volatile periods like this, but compared to where we were just a month ago, stocks are on sale. Here’s some numbers to back that up:
- The S&P hit a market high in February of 2020, closing at 3386.
- Today, it’s over 1000 points down at 2304.
- This is far from the low we hit in March of 2009 of 676.
- Wondering what all of these numbers mean? Read this and come back.
With a lot of uncertainty still to come, the markets could fall a lot more. That’s okay. To help manage the risk, I’ve suggested that clients set up regular, periodic purchases—once a month or with each paycheck. That way you’ll catch some of the lows without having to guess where the market is going. Periodic purchases can also help you rebalance to the asset allocation you originally established, if you don’t have a vehicle that already does that.
I’ve been happy to see clients that want to “walk the walk” and give in this time of need. Many people are out of work or have had a significant reduction of income due to social distancing. This is a chance to help those that may be out of work. You can do this through supporting local businesses (ordering pick up or delivery) or giving to charity.
If you give to a charity, remember that it’s more beneficial to concentrate your energy on one charity, rather than spread a donation over many different organizations. How much you give is up to you (from what I’ve seen it’s all over the place). If you’re looking for a tax deduction, you need to give to a qualifying 501(c)(3) charity, and you can give up to 60% of your AGI and still get a deduction on your schedule.
Lastly, with all of the talk about the markets and the coronavirus, taxes have gotten lost in the mix. You may have heard that the file and payment deadline got extended 90 days. But, if you think you may be getting a refund, there’s no need to wait. Start gathering your tax and get to a preparer.
Quote of the Week
“In a world where information is abundant and easy to access, the real advantage is knowing where to focus. Win the moment in front of you right now.” – James Clear
Task of the Week
I’ve given you a lot of options. This weekend, I’d love for you to go through the top two and then pick one from the rest of the list. What task allows you to “win the moment in front of you.” Difficult times can also be filled with opportunity for those who are ready for it. I’d love to hear what you choose. Email or message me below to let me know what you decide.