These are extraordinary times. Nobody is isolated from the effects this disease that effect every aspect of our lives, our families, our jobs, our communities, and those who we rely on for support, advice, and friendship.
There will be an ‘after the virus.’ The anxiety we feel because we do not know what that looks like will be gone. Hopefully not to be replaced by something larger. What I know is people’s financial lives will be dramatically different. Added healthcare costs and simultaneous loss of income will permanently affect everyone. If we include the depreciated value of money invested in retirement accounts, the future can look bleak. For those nearing retirement, money once counted on for retirement years is worth far less than it was. There are three options available to counteract those losses; live on less, take on more risk, or work longer.
If you still have time to recover, you may want to consider changing your savings strategy so that you’re better positioned to withstand large swings the economy. Diversify. There are at least ten strategies to create income in retirement. The stock market and a 401(k) plan are just two – and represent some of the riskier methods.
Let me remind you of the first rules of personal finance everyone should follow. They won’t make you financially bullet-proof, but they will help ease your anxiety. They are the same rules that we should live by in times of prosperity. If we stick to them in times of distress, we will be far better off than if we don’t.
If you haven’t been practicing them, it’s not too late to start.
Here they are:
Protect what you have.
Buy as much insurance as you can afford and makes sense to protect ALL your assets. Auto, Home, Excess Liability, Life and Disability Income Insurance. Yes, it’s a costs, but the insurance company’s money is cheaper than yours when an incident occurs. Your goal should be full replacement value. Put this in place for your home, your cars, and yourself.
Save, Save, Save . . . the right amount of money.
I always people save at least 15% of all income – unless earnings are over $200,000 annually. If that is the case, you need to save more – 20%. Save until you have at least six months of income in the bank.
For some families this isn’t possible. There is always more month than money. When this happens, save what you can. Even if it’s only a few dollars out of each paycheck.
If people had six months of income in the bank right now, there would be far less anxiety about the future. I have heard some advisors suggest to those with substantial incomes that keeping too much cash in the bank is foolish – because it doesn’t earn any interest. Trust me, during times like these, what you need is CASH.
Don’t contribute more to your retirement plan than the employer match.
So many times, I see folks investing tons of money into their employer-sponsored retirement plans before they save for that rainy day – before they protect themselves. The problem with this strategy is that you are literally kicking the tax can down the road and setting yourself up to have to borrow when you need cash. You will need cash, I guarantee it. You’re putting your hard-earned money away in a place where the only person benefitting from holding on to it is the bank. Ready cash is safer than invested funds right now. Always build up your own cash savings before you build up any other accounts. So what do you do with all that money? SAVE IT.