Financial Tips for the Coronavirus Crisis
Every 5-10 years, we face a major crisis. Today it’s the Coronavirus, a decade ago it was the housing bubble burst, before that September 11, and before that the dot.com bust. My point is that a crisis will come and go, but the sound financial principles needed to weather the storms of a crisis never change.
How to handle a drop in income
Any time you face a possible drop in income, the best defense is a good offense:
- Contact your creditors. Let them know you may have a drop in income and may not be able to pay your bill. Creditors are far more likely to work with you if you proactively call them before you miss a payment.
- Temporarily stop any excess payments to debts. Continue to pay the debt minimums and start saving to cover living and unexpected expenses. When the crisis passes, you have a chunk of cash to throw at your debts.
- Review your spending for expenses to reduce. For most people, groceries (doing more coupons, meal planning, etc.), eating out, entertainment and travel are the quickest expenses to cut.
- Postpone major expenses or upgrades until you can gauge the long-term impact of the crisis to your finances.
How to respond to the changing stock market
If you are watching your 401k plan turn into a 201k plan, your first reaction may be to sell. I encourage you to think twice. The last 10 unusual years of market highs have made people forget that highs and lows in the stock market are normal. The last thing you want to do is make a short-term decision based on panic that will cost you long-term market gains.
Don’t believe me. Ask anyone who took their money out of the stock market 10 years ago. The Dow is a widely followed method of measuring the stock market. About 10 years ago, the Dow averaged about 10,600 points in 2010 and the Dow more than doubled in the last ten years (Dow hit a market high of 29,551 points in Feb 2020). I don’t know about all of you, but it would hurt to know because of a moment of panic I missed my investments doubling in the future.
Your investment decisions should be based on:
- How long before you need the money? A rule of thumb is that funds needed in five years or less should not be invested in the stock market.
- How much highs and lows in the market are can you handle? Remember, you have to be okay with your investments, whether the market is up or down.
- How much time do you want to spend researching and reviewing your investments? The best investment method is often the simplest.
None of the questions above have to do with temporary market conditions. Emotions can make an irrational decision seem logical.
It is tough watching what seems like the world falling apart around you. We are resilient and we will persevere.