If you are worrying about how the COVID-19 pandemic will impact your personal finances, you are not alone. Never before have so many Americans been asked to stay home, hopefully to work remotely, but in many cases, not to work at all. The impact on our economy is unprecedented, hitting the market and a wide range of industries with a fervor few expected.
Although history has shown us that the markets will rebound, as they’ve done through other crises and recessions, many are feeling the burn now. Like many of my clients, you are probably wondering what you can do NOW to protect your personal economy. Consider these 5 steps:
1. Tap into your emergency fund.
Hopefully you have an ample emergency fund to carry you through this time of hardship. We tell our clients this fund should cover 6-12 months of your expenses. Obviously, this is a prime example of why emergency funds are so critical, but that doesn’t mean everyone has one in place or one that will cover you for the foreseeable future. If you do not have a sufficient emergency fund in place, you need a back-up plan. If you will receive a tax refund or will be the recipient of funds from the CARES Act and you don’t have any pressing bills to pay, you should consider putting this into savings. There are other actions that you can consider that you should talk with your financial advisor about.
2. Ensure you’re protected.
Financial protection is one of the most integral parts of your long-term financial plan. That is why life insurance and disability insurance are the foundational tenets of any successful financial plan. If you don’t have these protective components in place, it’s still possible to secure coverage at this time. In fact, some insurance companies are currently waiving the in-person medical requirements to adhere to social distancing guidelines while still enabling people to secure coverage.
3. Button up your legal and medical affairs.
Now is also an important time to make sure your legal and medical affairs are in order. This includes the following important documents: will, living will, health care proxy, HIPAA release and power of attorney. While you're at it, it would be a good idea to review the person or people whom you’ve named as beneficiaries on insurance policies, IRAs and 401(k)s, and make changes if warranted. And not just for you, but for your adult children and your parents too. Tragically, a pandemic like this means widespread illness and deaths. Having these documents in place and up to date may make future medical decisions easier and prevent wrong legal and medical decisions from being made.
4. Assess your debt.
The first step to assessing your debt is to list all mortgage and consumer debt, including credit cards, auto loans, student loans, and any other personal debt. Once you have a good sense of your debt situation, now is an optimal time to evaluate if there are opportunities that would alleviate some of your burden. Right now, we are experiencing extremely low interest rates, making certain refinancing and consolidation opportunities highly attractive. At the same time, it is essential to make sure these opportunities make sense for your personal financial situation.
5. Review your overall asset allocation.
It’s no secret that many people were caught completely off guard by the speed of the market downturn. As the global economy continues to suffer, taking a closer look at your investment portfolio to see if your goals and objectives are still in alignment with what you previously planned.
While there’s no quick fix to safeguarding your personal finances, focusing on these five areas can make a meaningful impact. If you’re not sure how to put these suggestions into action, or have questions about your current financial situation, please don’t hesitate to reach out.