The Financial Storm of COVID-19

4 Monetary Measures to Consider Until the Virus Passes

Something as simple as a lighthouse can act as a perfect representation of what our finances need during this black swan of a financial event.

Just over a month ago unemployment was at 3.5% and the common talk between employees and employers alike was that it was an employee’s market. It was the time to find a new dream job with potential upward financial momentum. Only a few weeks later and the new conversation between employees is that they are thankful they have a job, they are not sure how much longer they will have a job, or are concerned with where they will find work due to the recent layoffs taking place across the nation and world.

It becomes very easy during times of sunshine and calm waters to over-look our financial situations. While the jobs are plentiful and the income steady, we all begin to grow complacent with the thought that this is how it has always been and this is how it will always be. The reality is though, as we have seen in the past and are seeing in the present, that life can change quickly. Not only quickly, but often-times for the worst. Particularly for our finances.

Just as a ship leaves its safe port to navigate the seas to the next horizon, the captain and the crew may think that all journeys are similar as the breeze is calm, the sunshine consistent, and the waves as tranquil as glass. The reality for many is that they may not prepare the necessary rescue equipment or conserve enough supplies for the event that the calm waters turn into treacherous waves. The lighthouse that once stood as an ignored structure now becomes a beacon of light and hope for those trying to navigate their way back home. This stands true for our finances. The lighthouse serves as a consistent reminder that although it may not always be needed, it should continually be kept up to date and the light should always be ready to shine for the next storm. It is never the matter of if the storm will come, but a matter of when.

“Only when the tide goes out do you discover who’s been swimming naked.” Warren Buffett

This statement holds a lot of truth for governments, companies and individuals. Companies that were too far extended in debt are having a difficult time paying off their loans as their fixed costs are still burning through their reserves while their cash-flow has come to a halt. During good economic times these companies are looked at as heroes, as invincible. It is during the difficult financial storms that these companies (or ships) are tested. The same holds true for individuals.

Now, some of these things you may have already been doing, and if so, that is great. Take advantage of the market as a buying and investment opportunity. For others, this may be a wake up call to adjust your financial structure so that you have the needed foundation for the next financial calamity.

1. Create an emergency fund. I had mentioned this in an article while the stock market was soaring towards record highs, but now this step, once looked at as insignificant as people were making thousands of dollars from investments, now becomes the focal point for people all across the country. Try to set anywhere between 2–6 months worth of expenses in a savings account. Having this cash on the side serves many purposes. One, it will protect your assets in the event you become unemployed. If you have or had the luxury to save additional income outside of your immediate expenses, now is the time to create that safety net for yourself. The second purpose this can serve is in the event your income stays consistent. Now you can utilize that additional emergency income to invest in appreciating assets that are now being sold at a discount. Do not invest that money if your employment is not secured and you are not certain you will be able to fill that emergency fund back up with excess income.
2. Increase your 401(k) contributions. Most people become fearful during times like these (rightfully so), and so they become increasingly reserved and look at investing as a huge risk. The reality is that they have been paying into their company’s 401(k) while the market was doing well, but now that it looks like an inconsistent avenue for growth, they reduce or eliminate their contributions all-together. Think of it this way. Let’s pretend that you contributed $200 a month into your work’s 401(k) that was able to buy 10 shares of stock every single month. Now that the market has declined so drastically, that same $200 dollars is able to acquire 20 shares of the same stock. In essence, you are getting to own shares of companies at a discount. It would be like buying a house one week for $200,000 and then a month later being able to buy the exact same house for $100,000. Sure, in the present is looks extremely risky as prices have become volatile, but maintaining a long-term perspective it now should be seen as an opportunity.
3. Develop a budget. It is safe to say just about everyone is eating at home the majority of the time right now. Some may still be getting their meals from restaurants that are offering curb-side pick-up, but for all, this has increased the amount of time we spend making meals in the confinements of our homes. This does not mean that this is how it is always going to be, but now may be the appropriate time to investigate how much money was being spent for going out. Compare what you envision your expenses to be in contrast to what your net take home is. It will be much easier to scale up your activities once life returns to normal than it would have been to reduce those expenditures in the middle of normalcy. Form a new normalcy around what expenses and activities can financially be handled every month without neglecting your personal savings, investment and retirement goals. A couple of my go-to budgeting apps are Mint and YNAB (You Need a Budget).
4. Educate your children on finances. If you have children, this is the environment which can have a lasting impact on the development of your child’s perspectives on finances. In the event they do not have a savings account, now may be the time to explain the importance of this. When I was 10 years old I would referee soccer games for the U-8 division (other kids who were between the ages of six and eight). My dad would wake me up every Saturday morning for that ten week period to take me to the soccer fields to ref. Looking back, this truly put my mind in motion for how the world worked and how to be responsible. Hindsight, I did not make much money doing this, but at the time it seemed like a fortune. Whenever I earned my check, my dad would drive me to the bank and would have me deposit 50% into savings and the remaining money I could spend on whatever I wanted (at that chapter of life it was candy and Pokemon cards). Whether your kids work yet or not, use these life experiences that are happening around us to help them increase their world-view on finances.

Just as quickly as the storm arrives, they tend to depart just as swiftly. The path of destruction that was left behind might linger, but that does not mean that the sun will not shine again. The waves that were causing terror and chaos will soon be gazed at as beautiful and serene.

Whether your ship was prepared for this storm or not, the reality is that you aren’t going to sink. You may take on some water and might even have some sleepless nights, but the new perspectives from these experiences can force you to turn your rudder in a direction that you previously would not have contemplated. We are all going to make mistakes, whether before this, during this or even after this event. Do not aim for perfection, continue to take small actionable steps that will set your present and future self up for personal and financial success.

*This is not financial advice. For educational purposes only.