9 financial things you can do now!
It is the beginning of the 2nd quarter and we have financially turned on a dime.
Quickly! Violently!
Ninety days ago we were coming off of a 30% incline in most stock markets. Unemployment was at all time lows. Tomorrow will get the worst weekly jobless number ever recorded. We went from a “thrive” phase of an economic expansion to a “survive” phase. Economically, physically and emotionally.
Many of us have been ordered to stay in our house until told otherwise. It’s the “not knowing” the end date that causes a lot of stress. Uncertainty wreaks havoc on us financially and emotionally.
I don’t want to undermine the seriousness of the illness that is spreading or the human toll that we are undertaking. I just want to make sure that I can share a message to anyone reading this that there are some things that you need to do to make sure you financially survive.
I have been managing and advising people on money since 1997. This is my third “once in a lifetime” selloff that I have been through. The first was the “Tech Wreck” that started in March 2000 after there was no “Y2K” bug in all of our computers. No planes fell from the sky and the ATMs kept giving us our cash. The “Tech Wreck” was prolonged by the September 11th attacks in 2001.
Next we experienced the infamous “financial crisis of 2008”. It actually started in November 2007 and lasted until April of 2009. There are many complicated reasons that caused the crisis in 2008. But the banks got themselves in really big financial trouble, which nearly collapsed the world wide economy (no joke).
And during that time, I learned a lot about how to go from “thriving” to “surviving”. So, let me share some of my ideas about what I learned (some from personal experiences and some from client experiences).
Cash is king - don’t expect anyone to come and help you during a time of a crisis. You need to start measures now to raise as much cash as you may need if you lose your job. Six months to a minimum. A year would be better. There are also some things you can do to set up a solid financial foundation for when we get out of the current economic mess.
Access all of your lines of credit. Now. At any time your bank can close down a line of credit. Take the money now and put it in the bank. You will pay it back if you don’t need it during the time of a crisis. But it’s better to have it now before they shut it down (and they will shut it down if you or they get in financial trouble).
DO NOT pay large sums to a credit card. Now is not the time to pay off large debts. You are better off with the extra cash in your savings account. And just like with the line of credit above, the credit card companies are not obligated to keep your credit limit the same after you pay off a large sum. This happened to me in 2008 when I made a large payment to Capital One thinking I will have access to the credit if I need it. After I paid the large sum, they reduced my credit limit by the same amount I paid.
If you still do not have enough cash raised to get you through a six to twelve month crisis, then raise cash in your IRA or 401k. If the markets continue to go down, your cash will not. If the markets go up, then you missed out on some potential return for the safety of having access to the cash in your plans. With the new $2.2 trillion dollar stimulus package, you can take out $100,000 of your IRA or 401k (penalty free) if you were negatively affected by the Coronavirus. The government will let you pay the money back within three years or spread the tax liabilities over three years if you don’t put the money back. (I don’t recommended you take the money out of the plan unless you really need it. But it is a good idea to at least have the cash available).
Review every bank statement and credit card statement. Look for monthly subscription services that are not necessary. You’ll probably want to keep the Netflix, Internet, Plan Confidence (since it’s only $5 per month for professional advice for your 401k plan) and other subscriptions you will need at this time. You probably can get rid of the ancillary subscriptions for clothes, cologne, alcohol, etc. You can always start them up again (and believe me, there will be many great offers for you to reinstate your subscription when this is over). I personally still need to do this.
Review all of your insurance coverages and shop around. I am sure your insurance agent is working from home just waiting for something to do. Now is a great time to review your coverage and confirm if you still need it all. Go through each line of coverage with an expense and make sure that you need it. Also, ask for discounts as many insurance agencies will offer discounts if your affiliate with organizations, clubs, etc. I am currently doing this one myself.
The next two may sound morbid, but they are actually empowering. Review your beneficiaries on all of your life insurance and investment accounts. Also, if you haven’t done so already, sign a Transfer of Death (TOD) or Payable on Death (POD) form for all of your bank accounts (your bank may have not told you that you can do this). Naming beneficiaries will get your assets to the people that you want. And it avoids probate.
Review or create a will. Assets pass only in a few ways. By title, by beneficiary designation or through probate. Title and beneficiary designations will avoid probate. And think of a will as your final instructions to a probate court. The court does not have to honor your will and it can always be contested. But your better off giving the courts your wishes than having them “wing it”.
Review all of your investment accounts. Raise the cash you need (see above) and focus the rest of your attention on making sure that you have a plan for your investment accounts when the markets “normalize”. No one knows when this will happen. So be prepared. Don’t create a plan after the markets rebound. And they eventually will. Work with your adviser and be confident in what you are creating.
Have a bench mark to follow when you know you are out of the survival mode. Decide now what that means. And then payback your line of credit, make the large payments to your credit cards you were planning and pay back any monies from your 401k/IRA and reinvest the money.
These steps will help you now and in the future. These nine things put you in control in a season when everything seems out of control. This “once in a lifetime” crisis will someday be over. Make sure that you don’t let it derail you and your family financially. Do what you can to survive (financially) now.
And please take a little of the money you save following the steps above and support a local business. Small, local business owners need our help.
Stay safe and healthy and confident!
-Kevin T Clark, RF
CEO & Co-Founder of Plan Confidence Corp
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