In addition to the very real health concerns engendered by the coronavirus pandemic, it’s impossible to ignore how this virus is already impacting the economy. With many Americans laid off or furloughed by their jobs, financial panic is running rampant. Whatever your current financial situation may be, now is the time to get ahead of the impending recession.
How to Set Up Your Financial Family Plan
Though the economy has already taken a hit, it’s expected to get much worse in the coming weeks and months. While help in the form of a $1200 one-time payment is on the way, the question is how to survive now and for the foreseeable future. Experts from Polk Partners break down how to set up a financial plan during a pandemic in the following guide:
1. Boost Emergency Savings
One of the most important things to do when crafting your pandemic family financial plan is to find a way to boost your emergency savings as soon as possible. As more and more people lose their jobs every day, paying one’s daily expenses will become a challenge.
If you’re still working, start beefing up your savings immediately. As the pandemic runs its course, the economy is only slated to continue in a downward spiral. Make the most of your earnings now by saving as much as possible and capitalizing on high yield savings accounts. This way, your savings will continue to grow even amidst all the uncertainties.
Experts from Polk Partners recommend loading up with enough savings to cover several months’ worth of essential expenses. As the recession takes its toll, you’ll need a financial cushion more than ever.
2. Handle Your Debt
Another important part of your financial plan is to handle your debt. After taking care of your essentials and growing your emergency savings account, the next step is to handle your debt. Though most creditors and lenders are putting payments on pause during these times, you need a plan to pay down your debt once they start requiring payments again.
As you make a plan to pay off what you owe, prioritize mortgage, auto loans, and credit card debt. Eliminating high-interest debt as soon as you can will make it easier to prepare for your other financial obligations. This will give you peace of mind and help you to achieve financial stability during these uncertain times as this will encourage you to start saving more.
3. Identify Your Risk Tolerance
In your attempts to build a sound family financial plan, it’s a great idea to take some advice from financial advisors. Financial advisors work with clients to identify their risk profile. This process includes pinpointing the amount of risk you can withstand and the amount of risk that you’re willing to take on.
In the midst of a recession, it’s important to be realistic about risk tolerance. As uncertainty becomes the norm, your investments may cause you anxiety and panic rather than financial security. At this time, it’s a good idea to reassess your asset allocation, though you shouldn’t sell when the market is down. It’s best to wait for market conditions to improve. experts suggest trading in stocks for bonds or opting for blue-chip stocks in place of small-cap stocks.
4. Start Cutting Back
Another part of making financially savvy decisions amidst this pandemic is cutting back on unnecessary expenses. Now is the time to find out what expenses are discretionary and which are essential. Eliminating unnecessary discretionary items as soon as possible and scaling back where you can help you set aside more money to put into savings, put towards debt, or use for essentials.
When choosing what discretionary items stay or go, think of spending patterns or subscription services. If you’ve spent the majority of your quarantine ordering in and paying for multiple streaming services, now is the time to rethink this going forward.
5. Live Within Your Budget
As you strive to cut back more on excessive spending, another factor to consider when putting together your family’s financial plan is to tighten your budget and be sure to stick to it. A best practice for budgeting is staying within 30% of your net income (after taxes) for your discretionary items.
Take the time to revisit your budget and gain a better idea of what bills you need to pay every month. After essentials like gas, rent, groceries, and the like, try your best to divert all other earnings to your emergency savings.
6. Work Remotely with Multiple Streams of Income
One of the most powerful lessons that the recession is teaching us is to find ways to translate our daily lives into a digital routine. Those of us still working are doing so from home with the help of Wi-Fi and video chatting. If you don’t already have the option to work remotely, start building your skills to ensure that you have the opportunity to do so.
In addition to earning a steady income online, working remotely gives you access to multiple streams of income. If we’ve learned nothing else from the recession-inducing pandemic, we should all latch onto the idea of securing multiple streams of income immediately. In addition to the passive income you may already be earning, consider maximizing your active income through remote work at this time.
Depending on your skills and experience, you can find remote work positions available in every industry. Consider taking on new work-at-home jobs like graphic design, copywriting, marketing, virtual assistant positions, and the like. While you don’t necessarily have to shift careers during this time, having one or two additional streams of active income will help to bolster your emergency savings fund as you prepare for the worst in the aftermath of the pandemic.
Though none of us know the future, it’s better to be prepared than to wait for the situation to get worse. Paying down debt, saving as much as possible, making smarter decisions with your budget, and acting innovatively to maximize your earnings is an essential part of any family financial plan going forward. Whatever your current situation may be, using this guide will help you make sense of your finances and help you gain a solid foothold for the coming weeks and months ahead.