We are all doing it or having already done it.
You know what I’m talking about, rushing to the grocery store to stock up on food and of course toilet paper. While, yes, it’s important to make sure we can feed ourselves and our families during these unknown times it is also important that we continue to be stewards of our finances during times of turbulence.
Instead of a shopping list for the grocery store, think of this as a list of things to implement to during this period of uncertainty.
1. Take Inventory
Before you even stepped foot into the grocery store, I’m guessing you planned ahead by taking inventory of what was currently in your fridge, freezer and bathroom linen closet. This was the starting point because it informed your decision on how much chicken, rice and paper products were needed to get your family through this period of uncertainty.
I encourage you to do the same with your finances and take a moment to inventory your financial assets. Log-in to make sure you can access your various accounts and take inventory of each financial account balance and create a simple net worth statement for your family.
Once you have all your account balances in one place, sort them into two different categories, cash accounts and investment accounts. The purpose of this step is to understand how much of your net worth is liquid (in cash) and how that compares to what should be in your emergency fund.
Cash + Emergency Funds
We’ve talked about emergency funds in past posts and the purpose they serve to meet unexpected financial costs. With everything going on in the world today, this may be a period of time when your family calls upon these funds to supplement lost income or increased expenses. If you’ve been paying attention and have between 3-6 months saved up in a savings or a high yield savings account, job well done! You’ve been paying attention and should have some peace of mind as it relates to this aspect of your personal fiances. This emergency fund is as meaningful as having a pantry stocked full of toilet paper, hand sanitizer, face masks and gloves. You have done everything in your power to be prepared for times like these.
While its important to keep inventory on your emergency account balances and spending during these periods of uncertainty (health, financial and otherwise) there are some accounts that you want to make sure you have a handle on and know how to access but should not be looking at, especially times of financial volatility. These accounts include your company’s retirement plan and other investment accounts.
The first reason not to look at these accounts is two-fold. First being that if you have have a auto-savings plan tied to these accounts, it’s best to leave them in place. The only time it makes sense to stop a reoccurring contribution is if you need to top off the emergency fund.
If you have the ability to keep these monthly contributions in place, you will benefit from the current volatility. When markets are down, your dollars have greater purchasing power. Think of it as going to the store and finding out that work pants you were planning to by are now 30%, you would consider that a win. Think of this in the same way.
The second reason to stay away from looking at these accounts is because they have likely gone down in value. Depending on your specific investment strategy, your accounts my be more or less subject to the current equity market volatility. Keep in mind that the values you are seeing in your account are what is known as a “paper loss”. Yes, the account value is depressed but those losses are only on paper. The real loss happens if you decided to sell your investments to move into a “safer” investment like bonds or cash. When an investment is sold those paper losses become realized losses.
Keep in mind the bigger picture and the plan you’ve created that informed your investment allocation to equities in the first place.
2. Stick to your Plan
Times like these are why having a financial plan in place is so important. I haven’t spent much time on the concept of a financial plan but essentially it is a culmination of financial goals over your lifetime. Each person’s financial plan is unique with different starting points and final destinations with financial milestones along the way. Think of the financial plan as the road map to the spring break trip you were supposed to take (too soon?). As we’ve seen of late, obstacles will get in the way and detours will happen. Without the road map, its possible to lose your way and end up in the middle of a cornfield lost and confused. Not good.
Having a financial plan creates structure which allows you to connect the dots between each financial goal. Having this path in place makes it easier to stay en route and adapt. despite flight cancellations and beach closings. The timing of when you meet a financial goal might fluctuate, much like the timing of your next vacation, but you will get there in the end if you stick with the plan.
For those of you struggling to stick with your financial plan or don’t know what it means to stick to you plan, here are a few tips to stay on course. It’s like a workout routine, it’s not time to give up it’s just time to start working out from home.
- Stay invested!
- Keep automated savings in place.
- Keep investment account equity to fixed income allocation consistent.
- Schedule meeting with advisor or accountability partner to check-in and review financial plan and goals.
3. Focus on What you Can Control
This is a piece of advice that I am seeing over and over again because it has applications in all areas of your life! Applied directly to personal finances and investing, the areas over which you have complete control over are your expenses, investment allocation and your behavior!
When looking at this through the lens of personal finances, it makes sense that you have control over how and where you spend your resources. To my comments earlier in this post, if you have an automated savings strategy in place you have total control over that and can choose to keep that going (which you should!). You also have the ability to control how much you spend if you find yourself in a situation with a tight emergency fund. Spending less translates into additional savings for a rainy day.
I talk briefly about investment allocation in this post. At a high level, investment allocation is the split between equities and fixed income investments in your account. This is a decision that is informed by your financial goals. A decision you as the investor have control over and still have control over even during market volatility. Many people are tempted to change their investment allocation when the markets get rocky and move from equities to fixed income. Research and studies show that making these type of changes during a volatile market can have negative outcomes.
You had total control over the allocation when creating financial goals and still have control over it today. It was carefully selected based on your financial goals and stressed tested in your plan for market environments like the one we are in today. Hearing your friends or co-workers talking about their portfolio decisions or listening to the news should not change your mind otherwise. Do your best to tune them out and control the noise around you. Back to my point earlier, everyone’s plan and investment allocation is unique. Stick with your own journey.
To drive home the comments above, you have ultimate control over your behavior. You can control the noise you take in from your friends, Twitter, CNBC and you can control how you act on that information.
Control your urge to to stop your monthly contributions out of fear. Control the knee jerk reaction of wanting to sell your equities and buy fixed or cash. Research shows that investors who stay the course during times of uncertainty are the winners at the end of the day. When practicing self-care during these days of working remotely, try also practicing some self-control.
Hang in there friends and remember to stay the course!