Handling Your Finances After the Pandemic
In the midst of this incredibly surprising and tragic event that is gripping our country and the world. The COVID-19 crisis is forcing individuals and families to participate in a way of life, although different for most, that is offering an opportunity to reshape budgets and how families can save and prepare for opportunities or even the next unforeseen event that could drastically affect a family’s livelihood.
While it is not unique for people to lose a job, it is unprecedented for such a wide swath of American industry to come to a screeching halt all at once, costing job loss and such a significant loss of business income that it is affecting employees first of course, but also the business owners that have debts and vendors to pay as they fight to save there businesses in an environment that offers no timetable of when it may be safe to resume business.
Whereas safety and preservation of life is at the forefront of immediate concern, the unintended consequences of this pandemic can be life altering as several weeks of quarantine at home can provide for some interesting investments of time. Getting in touch with your faith, reading, writing, home projects, and a heavy dose of catching up on your favorite tv series are just a few ways I’m sure people are investing time in this new “Quarantine Life,” so all is not lost on staying at home and staying safe.
Another obvious benefit for most that are fortunate enough to still earn an income throughout this pandemic, is the fact with limited business hours and many business closings, many people have had to change how they spend money, typically saving more money over the last few weeks.
If you haven’t done so already, now is certainly the time to be thinking about starting or increasing the amount of money you invest in what is typically know as an emergency fund, I’m personally not a fan of the term as most of us have not seen an emergency that can cost us 3 to 6 months of our income, thus we usually don’t save for this and it will eventually catch many off guard as they expect their money on hand will cover such expenses. Many times, this does not work.
As a financial planner, I respect the term emergency funds but I get better response when I offer the term “opportunity funds” to clients, as they tend to visualize opportunities as a much more likely scenario and they are more apt to save for rewarding events like travel, home remodels, new cars, starting a business, marriage and graduations. Albeit, sometimes this savings may also go to car repairs or a new dishwasher.
So how are you planning to benefit on the other side of this Pandemic?
Aside from all the recommendations that you get your budget down to the bare essentials, it’s important to get a grasp on what you can afford with your newly built-in savings plan. Utilizing a method that declares a certain percent of your net income going to savings, you start where you are, but attempting to increase this net savings to 10%, 20, 30, or 40% or more of your net income going to savings in the future. An example, if you and your significant other bring home $6,000 net income per month, $600 per month should be going to savings, with a portion going to cash on hand, typically a lesser amount, and the remaining going to an investment with the intent to earn more on this savings.
Should you be fortunate enough to steer clear of any significant emergencies or job loss, after several months on a plan like this, you will have succeeded at putting a plan in place that will allow you to stay out of debt, while enabling you to participate in the activities that can enhance your life where having enough money has been a deterrent in the past.
Therefore, use this time wisely to evaluate what you want your financial lifestyle to look like after this much required quarantine. Directing your money to the precious things that will add to your health, legacy and the people you care about most.
Earl Johnson, Sr. Vice President, Wealth Manager