12 COVID-Proof Money Tips From Financial Planners
Top view of female hands counting money.
The coronavirus pandemic has changed almost every aspect of our financial life. Many of us have lost jobs or hours of work, seen our investments go from high to low, and changed the way we spend money, with much of our usual expenses (commuting, vacation, etc.) now off the table . With ongoing uncertainty about how the pandemic will affect the economy in the future, it's important to take smart financial steps that will weather whatever is to come.
While some golden rules of money management still apply, other pieces of advice have changed due to the uncertainty we have faced over the past few months. I've spoken to financial planners to find out what tips they have given their clients to help them face the current crisis and be prepared for the future. Read on to read this advice for yourself.
Last updated: November 17, 2020
Financial accounting investment advisor advice.
Focus on what you can control
"You cannot predict or control how the pandemic will affect the marketplace," said Carrie Schwab-Pomerantz, CFP, chairman and president of the Charles Schwab Foundation. "But you can control how you manage your investments, how you save, have a financial plan, and how you react to events."
Monthly budget plan for expenses and money.
Create a budget to maximize your resources
Creating and sticking to a budget is a financial tip that always applies. However, you may need to visit your again to consider changes in your lifestyle due to the pandemic.
"If you can, reconsider your needs and wants, re-prioritize your spending, and plan better for the future," said Schwab-Pomerantz. "Put what you don't spend on 'extras' in the future - whether it's your emergency fund, your retirement or your education."
Keep your expenses down
"Managing spending during this time is very important," said Robert Conzo, CFP, CEO and General Manager of Wealth Alliance. "Job stability is a very big problem and it can affect people's lives dramatically. Living within one's means is always good practice - now this is no exception and could potentially allow a family to reduce the negative effects of changing jobs."
elderly woman putting coin in piggy bank.
Build an emergency fund
"We don't know how things will play out or how long this will all take," said Justin Pritchard, CFP at Approach Financial. "It is wise to have a little more money on hand for these times."
With so much volatility in the job market and the stock market, it's important to be financially prepared for any crisis you may face.
"Don't be upset by news about vaccine progress," said Ric Edelman, founder and chairman of financial education and customer experience, Edelman Financial Engines. “It will take another 12 to 18 months before enough is manufactured and distributed. Meanwhile, 10% of companies expect layoffs by December 31st. Make sure you have adequate cash reserves. "
An emergency fund ensures that you can stay safe no matter what.
"Ideally, you would like to have enough cash available as a buffer to cover the essential expenses of three to six months," said Schwab-Pomerantz. “Find out how much you can afford to put money into your emergency fund each month and have that amount automatically deposited into a dedicated savings account. When you reach your goal, you can use those savings for something else. "
Remember that emergency funds are for emergencies
You might be tempted to dive into your emergency savings to cover unneeded purchases - especially when the holiday shopping season is around the corner - but this is a mistake.
"Look at your savings like your face during the pandemic: don't touch it!" said Louie Valdez, CFP, financial advisor with Wells Fargo Advisors in Westlake Village, California.
Roll of money for 401K with coins.
Use all the advantages for your employees
If you are still employed, make sure you are getting any employee benefits that you may be offered.
"There is likely money hidden in your paycheck," said Pam Krueger, founder and CEO of Wealthramp. "If you're still lucky enough to work for a company that can afford to offer you a 401 (k) match for any dollar amount, you can take full advantage of that." This 401 (k) match is free, but you only get it if you contribute. "
"Also evaluate health care services like HSA accounts," she continued. “Health savings accounts are the only savings vehicles that are triple tax-free. The money you contribute goes into the input tax of the HSA account, the funds grow tax-free and are tax-free when used to cover healthcare expenses. You can invest and expand these funds throughout your life as well. Think of an HSA as an IRA for health or medical expenses. The money in the account is invested and, depending on the provider, you can choose whether you want to invest in your preferred low-cost index funds or ETFs. "
Invest in myths
Make an investment plan and stick with it
"Use any period of financial uncertainty to reassess your risk tolerance and confirm that your investments are compatible with both your time horizon and risk tolerance," said David Bunin, CFP, principal advisor at Interlock Financial.
It's easy to let your emotions get the most out of you when investing, but you should avoid panic buying and selling.
"The urge to do something can be overwhelming, but it can often make things worse, either by selling too low immediately after a market downturn and missing out on future profits, or by tracking performance after the markets rebound," said Schwab- Pomerantz. “Often the best strategy is to do nothing. A good financial plan is strategic, but not set in stone. It can develop when your goals change. If you don't have a financial plan, it's not too late to come up with one. You can do one alone or with a counselor. "
Diversify your wealth the right way
Diversification should be part of your investment plan.
“Most people might think of diversification, as is the case with traditional asset classes. This is not what many believe, as traditional asset classes are a broad category of their own, ”said Neil Carr, certified financial planner at Hawthorn Bank. "For example, people might think that domestic large and small capitalization stocks are diversified when the truth is that they are highly correlated. For better diversification, consider assets like real estate, commodities, hard assets, foreign loans, long and short -Hedging strategies and arbitrage of mergers and acquisitions. "
"Some of these can be difficult for individuals to access, but the idea remains the same for the individual investor - look for opportunities outside of the traditional asset classes," he said.
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Reevaluate any fees you might pay
"Consider reviewing all of your investments for any additional fees that may be missing out," said Krueger. “Put that money back into more efficient investments. Be sure to look at the funds in your 401 (k) plan and consider alternative options with better investment fees. This check should also include your insurance, e.g. B. property insurance. Make a good assessment of the rewards you are spending and be aware of where your money is going. "
Handsome man holding credit card and using laptop for online purchases - indoors.
Stick to the five day rule
"Use the five-day rule to distinguish between a need and a need," said Sten Morgan, certified financial planner and president of Legacy Investment Planning. “If you can go five days without something, it's a need, not a need. This will cut back on impulse home buying from COVID that you may quickly regret. "
Couple working in home office
Retirees should prepare for short-term volatility
"Retirees should have at least five years of their cash needs in fixed income and / or cash equivalents in order to plan for short-term volatility," said Nicole Strbich, CFP, director of financial planning at Buckingham Advisors. "This is a proposal that was unchanged before the pandemic but is even more important today."
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Ask for help
Pandemic or not, it's always useful to get external opinion to ensure your financial decisions are serving you.
"Rely on your trusted advisory team," said Kathryn M. Brown, CFP, founder and director, Morton Brown Family Wealth. "You don't have to figure everything out yourself. Having a voice and perspective from the outside can help you stay on the ground and make clear, confident decisions."
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Gabrielle Olya contributed to coverage for this article.
This article originally appeared on GOBankingRates.com: 12 COVID Safe Money Tips From Financial Planners
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