You are no doubt reeling from the recent events attributed to COVID-19. The stress of uncertainty weighs heavy on all of us. Many of you are now faced with the challenges of balancing working from home with caring for children whose schools have closed, travel plans that have been cancelled, the vulnerability of our elderly parents, and more. Life as we know it has changed, for now.
So, we are taking a more somber approach to the topic of money and will answer the question, “What should I do now?” Let’s address some of the biggest financial concerns you have as a result of current events, so you can take action and keep control financially.
But first, I would suggest you take 5 big, deep belly breaths. Be kind to yourself, you’ve got this.
What should I be doing now?
INCOME – If you believe your income will be impacted as a result of events, put some thought to what a conservative income might look like this year. Spend a few minutes penciling out your expenses so you know what you must pay for, versus what you’d like to spend money on. Take a look at every expense, including your contributions to retirement accounts and investment accounts. Ask yourself if you can continue to cover the expenses you have with a decrease in income.
If you believe you will not be able to cover your current living expenses, choose where you can cut. Start with the expenses you truly don’t need – like entertainment, dining out (or take out, as our current option), and online shopping. We each have our weaknesses when it comes to spending, so take a look at yours and pledge to cut.
This may be a time when you have to dial back your 401k contributions temporarily. I don’t offer this lightly, but in times like this, if it makes the difference between covering costs or not, you may need to either cut back or stop altogether your retirement contributions for now.
Resist the temptation to use credit cards to cover the financial gap. It can be hard to dig out of debt once you have it, and putting living expenses on a credit card is a signal that you truly cannot afford this lifestyle.
If you have an emergency fund, this may be the time to tap into it. If you do not and income is still at a point where you can prepare for a potential decrease in a few months, put aside enough cash to cover at least three months of fixed expenses.
ALTERNATE SOURCES OF INCOME – I’m not talking about another job here, but you may be in a position to refinance your house. Rates are at historical lows, and this can reduce your monthly income by several hundred dollars, which could be used for living expenses.
If you run your own firm, you may have opportunities here in terms of generating different sources of income. I know clients who have added expert witness work to supplement income or considered coaching other attorneys. There is also an opportunity here to cut firm expenses so that more money passes through to the business owner.
RETIREMENT ACCOUNTS – For most of you, your retirement accounts have suffered a marked decline in value. If you have a well-diversified portfolio, and the investments are in line with your goals, our best advice is to stay the course. This is not the time to sell stocks. Resist the temptation to sell your investments and move to cash. We have been here before with the market, and we will recover. If retirement is decades away, try to resist checking on your accounts daily.
We know that changes in contributions and withdrawals have the greatest impact on success of a financial plan, bigger than if you change around your stock and bond allocation. If now is the time for you to dial back how much you contribute to your 401k because you need the money, tell yourself that as soon as life is back to normal and income has recovered, you will increase the 401k contributions.
There is a lot on everyone’s mind right now, and financial uncertainty can create tremendous stress. Take a few breaths, turn off the news, and get your hands around your current financial situation. There are some actions you can take here to make sure you will be okay now, and in the future.
If you have any questions at all, need feedback, or direction, I am more than willing to spend time talking to any of you who needs a sounding board.
Bridget Venus Grimes is President of the financial life planning firm WealthChoice, and is passionate about helping women attorneys make smart financial choices and live the life they want.