5 Strategies to Manage Finances During Coronavirus Uncertainty

Hello my podcast friends. I’m Laura Adams and I’m so glad to have you with me this week. Creating this episode was and is eerily familiar to one that was published at the end of 2008 just a few months after I became the host of the money girl podcast, the great recession, which lasted from the end of 2007 to about the summer of 2009 was getting real and the show was a response to many questions I received about how to invest and shore up finances successfully during the crisis. So this is going to be something very similar. We should be prepared for significant hardship in the economy about once a decade now. It’s been about 12 years since the last one, so I guess we’re overdue. The Corona virus is a big but invisible challenge that is most certainly causing a host of first-time problems for families, businesses, and the medical community. Maybe we should call this economic downturn the novel recession.

You probably know that earlier this month, uh, in early March, Congress approved a big package of funds, eight point $3 million for various government health agencies that are dealing with the virus, including Medicare and the response from the federal and the state government is still unfolding. As I’m recording this show, they are still working on the second package and these are probably going to continue to come and phases, but whatever is passed, it’s going to be aggressive to preserve public health, help consumers manage living expenses, and help business owners cope with major disruptions. And I’ll be updating you with details when we know more about what the specifics of pending legislation mean for you in your personal and business finances. But until then, I want to talk about some things that we can do on a micro level to make our financial health as resilient as possible. So in this podcast, I’m going to offer five strategies to manage money in uncertain times and address some of the questions that have come up from members of my dominate your dollars Facebook group.

And many of you who have emailed me from the podcast listening community. And by the way, if you’d like to join the Facebook group, it’s really easy to do. It’s a terrific group filled with lots of smart people who are helping each other. If you would like an invitation, you can text the word dollars, D O L L a R S to the number three three four four four or you can just go on Facebook and do a search four, dominate your dollars. And as always, you’ll find the notes for this show and the complete archive of podcasts in the money girl [email protected] this is episode number 630 called five strategies to manage finances during Corona virus uncertainty. Okay, so tip number one is check your emotions when the financial markets are down or extra volatile. And when we have so much uncertainty with the economy and with what’s going on with everyone’s health, the true nature of your risk tolerance gets revealed.

So whether you’re a river boat gambler or a stuff the cash in the mattress kind of person, you’ve probably been wondering what changes, if any, you should make to your investments right now. And I want to encourage you that before you do anything, I remember that being a successful investor and money manager is mostly about managing your emotions. And I know that’s easier said than done because there’s no separating money from emotions. However, in general, the fewer rash decisions you make, the better. We’ve seen how emotions affect the economy with panic buying of basic supplies such as toilet paper, hand sanitizer, and bread, which continues to leave most store shelves bare. And with investor emotions, I mean they’re on full display with the wild swings that we’ve seen in the stock market. These get fueled by two powerful motivating forces. Fear agreed. The problem is when you panic and you make quick drastic decisions such as selling your investments at the moment their value drops or taking a loan from your retirement account, they can set you back financially for decades.

So instead of letting your emotions get the best of you, consider imposing a waiting period on yourself before making any large scale money decisions. Allow a plan for making any changes. Just soak in for a day or two and definitely consider discussing it with a financial advisor or a representative from your investment firm before you pull the trigger. And I’m gonna definitely encourage you not to pull the trigger, but have any conversations about things that you may be considering. All right, tip number two, maintain cash reserves. So as we all know, this issue with the Corona virus happened pretty suddenly. I mean, the economy was just moving along. Life was going well, we had travel plans, work plans, a lot of things that were we were doing and we had a sense for what was coming next. And then all of a sudden here we are.

And it’s a tough reminder that events can change quickly and that we have to be vigilant, particularly in good times, to stay prepared for potential bad times. So those with emergency funds in the bank right now are going to feel a whole lot less stress than those who don’t. That’s exactly why it’s essential to maintain a cash reserve of at least three to six months worth of living in an FDI C insured bank savings account. And if you don’t need to dip into your emergency fund, I want you to continue shoring it up when possible. Now, if you don’t have a cash reserve, you don’t have an emergency fund at all. Do what you can to accumulate some amount of savings by cutting non-essential expenses and even temporarily pausing contributions to retirement accounts if you’ve been making them, that’s a better option than succumbing to panic and tapping your retirement funds early or taking a loan from your 401k.

For instance, most workplace retirement accounts allow you to borrow half of your vested account balance up to $50,000 but you’ve got to repay that over a five year term. But they only allow regular withdrawals. So, you know, not alone, but a withdrawal can only be taken from a workplace retirement plan for a few very specific needs, such as avoiding foreclosure, paying for a funeral, or paying education expenses. Even if you do qualify for a retirement account, hardship withdrawal, you’re still subject to a 10% penalty on the funds that you withdraw. Typically, you also get locked out of making any new contributions for a minimum of six months. So if you are considering a withdrawal from your retirement account, uh, this is something that you only want to do as a very, very last measure. You know, another reason to not to break your qualified retirement account piggy bank is that it gets special federal legal protection specific plans such as a 401k and even a SEP IRA.

They’re covered by a law called the employee retirement income security act. [inaudible], [inaudible], E. R. I. S. a for short. It’s protected from claims by creditors. So that means if you went into foreclosure or, uh, had some serious financial hardship, creditors could not attack your retirement account, your 401k. But if you drain that retirement account, then it’s gone. And you know, in a lot of cases, many people are tapping it unnecessarily. And the bad news is that not all retirement accounts get this automatic federal protection. For example, traditional and Roth IRAs are not covered by Orissa. However, they may be protected in some States and under federal bankruptcy law. Therefore, if you find yourself in a serious cash crunch, which I know many of you will be feeling, contact your creditors before you dip into any retirement account. Many lenders will be willing to work with you to either suspend payments or to modify existing loan terms temporarily.

They should have options to help you based on pending and new legislation. The first round of consumer protections did put a 60 day hold to foreclosures and any post foreclosure evictions on the mortgages backed by Fannie Mae or Freddie Mac. However, proposed bills might expand these protections for homeowners. So what I want you to do is check your loan documents, your mortgage statements, or visit the website. Know your options.org to learn more about relief for homeowners facing a crisis due to the Corona virus. Again, it’s know your options.org the third tip is to keep up good savings habits. I think the most common question that I’m hearing right now is should I even continue to make contributions to my 401k and I would say if you’ve got some cash in the bank and you can afford to make contributions, and I would say if your retirement is at least five to 10 years away, the answer is an emphatic yes.

Continue making those contributions. Most investors contribute the same dollar amount or the same percentage of their income or wages every pay period. Not only is this a convenient way to invest, but it allows you to dollar cost average. That simply means that you’re buying a fixed dollar amount of investments on a regular schedule. Let me give you an example. Let’s say you contribute $200 a month to your 401k at work. You end up buying more shares when prices are low and fewer shares. When prices rise. Dollar cost averaging is a pretty simple buy and hold strategy that allows you to accumulate shares and to see your account balance go up when the prices of those shares rally and eventually they will rally. Also, don’t forget about the benefits that you may be receiving from company matching. If you’re fortunate enough to get a percentage match from your employer on your 401k or four Oh three B contributions, those matching funds can easily offset losses in your account, so you need to be continuing contributions to take advantage of that matching.

However, if you’ve been laid off or you work in an industry that’s going to be unstable during the expected economic downturn, you might be better off suspending retirement contributions and shoring up your emergency fund instead. It just depends on how much cash you already have and how stable your income should be. Before we go on, I want to tell you about a quick and fun way that you can help keep the money girl podcast going. These days. Many of us are doing a lot more online shopping than we used to, but did you know that when you shop on Amazon, you can also support the show and the entire quick and dirty tips network. All you need to do is go to quick and dirty tips.com/amazon you’ll find a link that can take you right to Amazon with a little tracking code attached that tells Amazon you came from me when you and make a purchase.

Using that link, a percentage of your total will make it back to money girl headquarters without costing you more and that money helps me and everyone at the network continue to bring you more great episodes. I know you want to hear the best part of shopping on Amazon is that you can find anything. Get a brand new e-reader to stay entertained and informed or a new stand mixer to help you experiment more in the kitchen or vitamins and supplements to stay healthy. Just go to quick and dirty tips.com/amazon to start your next shopping trip. That’s quick and dirty. tips.com/amazon thanks for supporting the show. Tip number four, watch your investment choices. Another common question is, is there anything different that I should be doing with my money right now? Wow. It’s wise to continue investing. You still need to be picky about what you buy.

Loading up on shares of a fundamentally lousy stock or fun. Just because it’s cheap doesn’t make sense. Depending on your retirement account, you likely have a very nice menu of funds to choose from. Sticking with diversified index funds, mutual funds or exchange traded funds is very wise. Unless you’re an experienced trader, I never recommend buying individual stocks even when prices plummet. So if you’re not sure what funds you’re buying with your contributions, you can log on to your retirement account and take a look. You’ll see your balance for each fund, the percentage return over different periods and the amount of company matching that you may have received and a lot more information. So it’s a good time to check out your investment allocation and I can give you a pretty easy shortcut that you can use to make sure that you’re comfortable with your allocation and it’s easy.

You simply subtract your age from 100 or even from 110 if you prefer more risk and then use that resulting number as the percentage of stocks or stock funds that you should own. For example, if you’re 40 years old, you might consider holding 60% of your portfolio in stocks or stock funds is what I really recommend. If you tend to be more aggressive, subtracting your age from one 10 would indicate 70% for stock funds, but again, this is just a rough guideline that you may decide to change. You might allocate your stock percentage to a variety of stock funds or you could put it all into one stock fund that’s diversified. The remaining amount of your contribution would be put in other asset classes such as bond funds or cash. This allocation should stay the same even in an economic downturn. Now, most investment accounts have a really nice way that you can make sure that your investments are allocated the way you want them to be all the time.

And it’s called automatic rebalancing. So if is an option that you haven’t turned on in your account, make sure that you select it. It’s really helpful because it’s going to make sure that you maintain your preferred amount of stocks in your portfolio even as prices are moving up and moving down. And if you’re not sure how to use a rebalancing feature or to know if it’s on, speak with a representative at your investing firm for some guidance. And the last tip, number five, focus on what’s in your control. Once you’ve done some debriefing and exhaled out the panic, focus on what you can control. Many economic factors that affect your investment portfolio and your health are simply not under your control, so don’t worry about them. Your job is to stay informed, stay healthy, and stay as calm as possible. Now this isn’t going to eliminate worry from your life completely, but I want to challenge you to worry only about the things that you can directly influence or change.

Unnecessary worry about something that you can’t control has a cost and it never makes the thing you or your family any better. Once you accept this idea, I think it makes it easier to move forward and spend your time on something else. Spend it on something that you can control. Find a way to focus only on the limited scope of actions that you have. Staying home while the virus runs its course isn’t fun, but you can use the time wisely. Bye. Creating a budget, completing some long avoided tasks, paring down your closets, learning something new, using some new debt reduction strategies. I have a whole lot of them in my book debt free blueprint, which was an Amazon number one new release. It’s something that you could definitely spend the time reading right now. You could keep a journal, update your resume, find a side gig stream and online exercise class or connect with loved ones on FaceTime.

Look around and figure out how you can create more income or cut unnecessary expenses or manage the debt you already have better working on those tasks that you can control will give you a lot more clarity and help you manage stress and uncertain times. Before we go, I want to thank our quick and dirty tips, managing editor, Karen Hertzberg for creating a webpage devoted to your questions about coven 19 she makes the critical point that we will not sensationalize it, but we can’t ignore it either. What’s so unique about the QDT network is that we’re a diverse team of subject matter expert, podcasters who provide evidence based information to help you do things better and live a better life. Our job is to prepare you and inform you not to scare you, so in an effort to be as as possible, we’ve set up a question form that you can use to help the direction of the podcast that we produce.

You can access [email protected] slash Corona virus dash questions. Again, quick and dirty tips.com forward slash Corona virus dash questions. We’ll use the questions you submit for any of our eight expert hosts who cover a huge range of topics, including science, fitness, parenting, workplace communication, nutrition, mental health, writing, and of course personal and business finances. We’ll use those questions to lift you up with helpful information right now, so that’s all for now. I will talk to you next week. Until then, here’s to living a richer life. Money grill is produced by the audio wizard, Steve Ricky Berg with editorial support from Karen Hertzberg. If you’ve been enjoying the podcast, take a moment to rate and review it on Apple podcasts. New episodes are released every Wednesday, and when you’re subscribed to the show, they automatically show up in your podcast app.

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