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Social Distancing? 7 Ways To Get Your Financial House In Order While Spending Time At Home


By Marigny deMauriac, AAMS

Remember those finance related new year's resolutions you were so excited about? We are three months into 2020 and this past week we experienced the most volatile market since the financial crisis. Up until now, we've been enjoying the experience of one of the longest economic expansions. Last Thursday, however, stocks plunged 10% in the Dow's worst day since 1987. As we brace for impact from COVID-19, are you prepared for the uncertainty that is yet to come?

While you attempt to evade this international pandemic, take the time that you won’t be spending at social events in the coming weeks and get your financial house in order. 

1) Review, itemize and commit to implementing your strategy to pay down debt.

List your debt from smallest to largest then commit to paying it down. Revisit interest rates and see if there is any way to consolidate for lower interest rates so that you're paying more toward principal, less on interest alone. Eliminate those credit card debts with the highest interest rates: the sooner, the better.

2) Revisit your monthly expenses.

With COVID-19 on the move, lay offs and more uncertainty are just down the road. Make sure you have a firm grasp on what your monthly expenses are and see if there is any way to reduce your expenditures to bulk up a proper emergency fund (or keep your existing emergency fund in tact as long as possible). 

In order to effectively build wealth, you need to routinely track your expenses and the income you are bringing in to cover those expenses. If your income is at risk, you need to seriously evaluate the extras...for example, whether it makes sense to take advantage of cheap COVID airline flights right now...Really? Is your money truly being spent where you need it to be in order to put yourself in the best financial position right now? This requires some thought about downsizing expenses and being a bit more intentional with your money. 

3) Review what you are keeping in an emergency fund

You should have a minimum of 4-6 months of your expenses liquid and accessible in the event of an emergency...like say, if a pandemic were to prevent you from being able to work for two months or should a decline in your boss’s revenue result in total job loss. If you don't have this set aside right now, then it is that much more important to revisit your monthly monthly expenses (see #2).

4) Get disability insurance. 

If your employer doesn’t offer it and you can afford it, this insurance will provide you an income stream should you become unable to work. While you’re at it: evaluate your other insurance policies for cost and coverage. Routinely you may find that you are paying more than you should for insurance. You may also find that you’ve experienced a change in your life situation (having kids, buying property, marriage, divorce, etc), and you have not updated your insurance to effectively cover or address those changes. 

5) Be proactive in your tax planning & make your retirement savings a priority

If the events you were planning on attending have been cancelled, you’ll have ample time to prepare your financial documents so that you are ready to meet with an accountant and your investment adviser. These professionals can assist you in maximizing possible deductions, while also analyzing appropriate retirement vehicles that could reduce your tax liability while you save more for retirement. Gather your w-2s, 1099s, and whatever else you have together.

6) Review Risk In Your Portfolio

It's important not to allow an upset in the market to derail your financial strategy. While you do need to carefully evaluate risk and your portfolio make up, now is not the time to totally abandon your existing plan due to sheer panic. Take a breath and contemplate: Is what you are about to do in your investment accounts really in your best interest for the long term? At all costs, avoid prematurely dipping into your retirement accounts. With the decision to cash out of existing retirement accounts, often there could be tax penalties, which could make a difficult situation even worse for you next tax season. Along the same lines, however, allowing old retirement accounts from prior employers to sit, totally unattended, is also not advisable.

If you're not sure what to do, gather your financial statements and commit to a portfolio review with a fiduciary adviser (a financial professional who truly puts your best interest ahead of their own and is a good steward of your finances). Everyone is comfortable with their investments when the market is up, but how comfortable are you when your accounts are down? And for how long could your account be down before you think about adjusting your holdings? Consider a more robust review of your risk tolerance, overall portfolio and goals to make sure you stay on track.

7) Review and update beneficiaries 

If you’ve had any life changes such as marriage, divorce, birth of a child or grandchild, bought property, etc...You need to review your estate documents (will, power of attorney, living will, assigning guardianship, etc), the registrations on your accounts, as well as your insurance documents to ensure that you have updated beneficiaries, executors, and trusted contacts that are truly in line with your wishes. When you make changes, inform those you trust of any adjustments and your wishes moving forward. You’ll also want to organize and store your financial documents in a spot that can be easily located in the event that something should happen to you. 

Additional Note For Business owners: COVID-19 won’t be the last interruption to your business, so if you are struggling this go around, it’s time to put effective policies and practices into place to make things easier for yourself in the future. If you don’t already have a business continuity plan in place, this is going to be a really difficult time to get through. It may take some ingenuity on your part to keep things going and you may have to shift a lot of ways you've been doing things in order to keep afloat. Take this time to identify risks to your business and create policies and strategies that you can effectively implement to keep your business thriving through these rough waters. Always remember what you value most and what got you into your business in the first place. Don't lose sight of that over the next several challenging months.