Financial Planning during Shelter-in-Place
For many of us, sheltering-in-place may have caused some changes to our typical financial positions. And whether those positions have worsened or improved, we (my co-author Adreanne Stuckey and I) wanted to share some ways to be fiscally responsible during these strange times. Our advice comes through the lens of three major categories: budgeting, emergency funds, and investing.
Now more than ever it is important to start or maintain a budget. This is especially important for some of us that have experienced changed incomes. We need to make some hard decisions on where to trim so that we have money for the essentials. For others, because we are working from home, our expenses have changed even though our income streams haven't.
Here is some overarching good news regardless of which of the two buckets you fall into: our expenses as a whole have decreased. People are spending less money on transportation, eating out, and entertainment because we are all spending more time in our homes and doing free outside activities, such as walking the dog or watching our weird neighbors. What this means is that we may all have a few more extra dollars than we think. Budgeting helps us understand our true financial position. It can improve our emotional outlook on our financial status, as well as help us understand how we can plan to move forward. There are a couple of things to consider as you are drafting or revising your budget:
Ways to cut back: With many companies laying off and/or furloughing employees, Adreanne and her husband went through their budget and highlighted various expenses that could be cut if either of them lost their jobs. Before tapping into your emergency fund, think about the expenses you don't have right now like the ones listed above. Other expenses you could cut might be that gym membership that you won't be using, or cable, Netflix or Amazon Prime. Another way to cut back is to look at your bank account and see what subscriptions you are currently using that you don't need. You can also freeze contributions to investments outside of retirement, such as mutual funds, investment groups and stocks. Depending on your situation, you may need to halt the debt snowball to free up extra cash, and just pay the monthly minimum payments instead. Maintaining those payments are important so you aren't behind or hit with fees, but your extra loan payments may be better used for essentials. These are all things you can come back to once the pandemic is behind us and some normalcy returns. A big caveat here is that while you are looking for ways to cut back, remember to keep one or two things (not that you necessarily have to pay for) that can help you maintain a good mental health level. You don't want to cut so much that you don't have the mental fortitude to survive.
Check your financial institutions' response to the pandemic: A lot of places are offering discounts, suspending/deferring the cost of their services, or giving customers significant grace periods if they cannot make payments. Call your banks, lenders (credit cards, student, mortgage, car debts etc), insurance companies, phone companies or any other institution you make regular payments to and see what they are offering to help you during this time, including if you will have to make back payments or if fees will be waived. I would caution folks to use this only if they really need it because these companies also have employees they need to pay. If needed, however, this could even further reduce the expenses you are putting out at this time.
Goals: Because expenses are down (and if your basic needs are completely met) this is a great time to focus on the financial goals you've set for yourself. This could be paying off debt, stocking your emergency fund, or saving up for a big purchase you know is coming once this pandemic has released its hold on us. Set one or two financial goals and reallocate all the money you are no longer spending on transportation, going out to eat etc. toward that goal. You'll come out of this pandemic in a better financial position than you might have been in before. Especially if you are trying to be debt free. Many lenders are stopping interest accrual which means any money you pay right now will hit the principal, knocking down how much you will pay them back in the long run.
Emergency funds are made for such a time as this, and they should be used only as a last resort. That means you should only use your emergency fund after you have reallocated your funds (based on a budget), cut back on unnecessary expenditures, and reached out to all of your financial institutions to see how they can work with you on your payments. Emergency funds are for paying your utilities, buying groceries, paying rent, or fixing your car. You should associate emergency fund spending with anything that you need to pay for to meet your basic needs: shelter, food, any expenses related to your job (car, internet, laptop maintenance), and any completely unexpected expenses that come your way. Not for the credit card bill from your shopping spree, as that is expected.
Denee felt guilty the first time she used her emergency fund, but you should absolutely not feel guilt. It is there to be used in case of emergency! The important thing to remember is to restock it as soon as you are able because another emergency will eventually come along.
If you are not at the point of needing to use your emergency fund, then we encourage you to add to it as one of your top two financial goals during this time. Right now, our jobs may be secure, but if we have to work from home a few more months, that may not be the case. Having our emergency funds ready to go will be how we survive in case we are no longer employed. That is one of Denee's overarching goals right now, to fully stock her emergency fund (3-6 months of expenses) while she is not spending money on other things.
The advice in this category is rather simple: stay the course! Don't do anything different. If you are already investing for retirement, keep doing so! You will still have to retire at some point in your life, and while this pandemic may seem ever-lasting, at some point it will end. Continue to keep the long-term in sight.
If you do have money to invest during this time, it could be a good time to buy while prices are low. Many stocks have taken a hit along with the economy. Placing a little more in your mutual fund or deciding to put $100 into a stock investment, could benefit you in the long-term. This comes with a caveat that the stock market is unpredictable so the results of any investments made now (or ever for that matter) may or may not pay off.
If you are uncertain about your financial situation, or just aren't comfortable doing so, don't do any buying or selling because your investment decisions right now may be based in emotion rather than smart money management. Emotion, mainly fear or greed when it comes to investing, are never good mindsets to make investment decisions.
We have thrown a lot at you, but we want you to know that this too shall pass. You will be victorious through this pandemic. Make your budget, use or build your emergency fund, and continue your investment routine so that you make intentional, rather than reactive, financial choices. Stay safe!