As we are all likely to spend most of the month of April inside and socially distanced, this gives us all an opportunity to take care of many financial issues that we have overlooked, regardless of whether you are currently earning or not. While you probably know about the CARES Act and what stimulus or unemployment we might be eligible for, the purpose of this article is to set you up for after the crisis once your immediate bills are paid.
Build out your cash reserves
People who have an adequate emergency fund, regardless of where they are on the income spectrum, are able to handle this crisis more easily than those who don’t. It is important to have at least three months of expenses on hand in a savings account for unexpected emergencies. This is the type of crisis that emergency funds are meant for. The more variable your income, the larger that fund should be. For those with highly variable incomes, that cash level should be a year's worth of expenses or more.
Look at your budget carefully
While you are not able to go out socializing or shopping, it gives you a great opportunity to reconsider your spending priorities. Yes, we miss going to dinners and drinks with friends, buying that handbag, or going to a ballgame. But whether or not your income has dropped, you can’t spend the same way you did just a few weeks ago. It makes sense to look at the way you are using money this month, then consider the ways you can use money better when the crisis ends. Whether that’s cutting back on luxuries and eating out or merely shifting expenses, using your money in a way that better fits your income and personal values can help you enjoy life more now and afford more later in life.
Look at your estate plan
Too often, I meet with people who don’t have basic estate planning documents prepared, such as a will, power of attorney, and health care proxy. Being in the health crisis that we are, I have heard of many stories about those who get ill trying to call attorneys to get wills done quickly. And these are nearly impossible to do in these times. If you have a will in place, make sure that it is updated. If you don’t have one yet, call an attorney today to start the process of getting one done.
Keep putting money in your retirement accounts
If you have adequate cash flow to pay your bills, keep making your periodic payments to your retirement accounts. After the stock market’s drawdown over the last several weeks, you can buy the market at steep discounts. While it may take some time to recover, the compounding from these levels will greatly increase your account’s potential.
Open a Roth IRA, if eligible
After the stimulus packages have blown a hole in the US budget, it is likely that tax rates will go up in the coming years. And regardless of whether you are still earning as much as before or not, you are still likely spending less this month than you had been in the past. Use that savings to fund retirement after you’ve built up your cash cushion. Further, with the delay in tax filing deadlines, you may have until July to make a 2019 contribution. Again, you will be buying the market at a discount and will benefit should the markets come back in the future.
Yes, we would all love to be enjoying the spring weather and getting outside, but we can’t right now. We can, however, get ourselves financially healthier while trying to maintain our physical health over the next couple of months.
Russell D. Rivera, CFA, CFP® is the Founder and President of Voice Wealth Management (Voice) in New York, NY. He also likes to think of himself as a Personal CFO and Financial “Therapist” for entrepreneurs, young professionals, and their families. He helps clients make prudent financial decisions regarding spending, saving, investing, and planning while giving a voice to the individual client's financial priorities and experiences.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
No strategy assures success or protects against loss. Investing involves risk including loss of principal.