5 Things You Can Do to Manage Your Finances during the Coronavirus Pandemic

By Lori H. Bishop, CFP®

Financial Planning Director at CORE Benefits and Investments

The Coronavirus outbreak may have you thinking about your finances now more than ever.  With bills, investments and mortgage payments to consider, as well as looming fears about a recession, you may need an expert opinion to cut through the noise and calm your anxieties.  We’ll be posting some tips on how to weather the Pandemic financially. Please feel free to share these with friends and family. 

Let’s start with the first of five things you can do to manage your finances during the Coronavirus pandemic.

#1 Be calm

The worst financial decisions both in investments and in spending, typically happen in times of heightened emotions. Watching the news and checking your retirement plan balance everyday can create unnecessary stress. If you have a financial plan in place, your investments should be invested based on your LONG-TERM risk tolerance and time horizon. 

Yes…your balances may be lower than they were prior to the outbreak of the virus. That is not something anyone likes to see but take a deep breath and don’t panic. Moving your investments to cash when your account is low does one thing…locks in the losses you have and keeps you from taking part in the recovery of the market when it takes place. And it WILL happen. This will not last forever. 

Let’s look at the past to get some perspective. The Global Economic Crisis of 2007-2008 was considered the worst since the great depression of the 1930s. In October 2007, the Dow Jones Industrial Average (DJIA) reached it’s highest point of about 14,000. By March 2009, the market had declined 47% to about 7000. Many people panicked and cashed out their accounts. They missed the recovery of the market. In 2013 the market surpassed the prior 14,000 level and by January of this year had climbed to about 29,000! There are many who were so frightened by the decline in 2009 that they never felt confident going back into the market until the past few years. They did the opposite of “Buy low, sell high.” 

The wise investor, Warren Buffet, once said, “You will continue to suffer if you have an emotional reaction to everything that is said to you. True power is sitting back and observing things with logic.  True power is restraint. If words control you that means everyone else can control you. Breathe and allow things to pass.” Wise words from a wise man! 

Be calm and carry on!

# 2 Develop a Short-Term Plan and a Plan B

Our first tip for managing finances during the pandemic was to be calm and not make emotional decisions. So now that you’ve taken a good deep breath, let’s move on!

Let’s start where every good financial plan begins – a cash reserve. In general, we recommend saving three to six months’ worth of expenses. Any cash you have in excess of that amount could potentially be invested while the market is low. I’ll talk about that more in the next post. If you do not have an adequate cash reserve, this step becomes even more important!

Begin by assessing your budget. Let’s talk about retirees first. Likely, you have income sources that are somewhat dependable. However, if the values of your investment accounts are down, drawing from those accounts now is having a greater impact because you are selling shares of investments at a low price. We recommend drawing less if you need less. 

For those still in the workforce, a good guideline for budgeting is a 50/30/20 budget plan. That is 50% to cover needs, like groceries and mortgage or rent, 30% to cover wants and 20% to cover debt payments and savings. It’s the 30% that covers wants that we can cut back on quickly if we need to. If the economic impact of the Coronavirus has impacted your income, that 30% is what you must focus on. A lot of that cutting back is happening because we don’t have a choice — commuting expenses and restaurant spending are going down naturally.

Next, take advantage of benefits provided by the CARE Act. If you have lost your job, go ahead and apply for unemployment. You can also expect a check in the mail if you qualify, and most US citizens do. If you did not have a cash reserve, now you do. Set this money aside and guard it. If your income doesn’t meet your needs, you may need this in the future. We don’t know how long this will drag out and it’s better to spend cautiously if things are tight. Consider the “What ifs.”  What if you are still not working in a few months and need income, are there alternate ways to earn income? Are there additional ways to reduce expenses? What if your savings has been depleted? Think ahead. Get creative! You can do this!

If you are not able to pay your bills, contact your lenders and service providers and see if arrangements can be made to temporarily reduce the amount of monthly expenses you have. If you have a student loan held by the federal government, your loan payments are postponed with no interest until September 30, 2020.

Go ahead and think of your “Plan B.” While we hope that the virus and resulting economic impact is short-lived, we recommend preparing for this to last several months. In other words, plan for the worst, hope for the best! 

Remember, stay calm, develop your short-term plan and a plan B!

#3 Develop a Long-Term Plan

You have your short-term plan in place…a cash reserve and a budget as controlled as possible to weather the economic impact of the Coronavirus. Now what? Now it’s time to slow down and think long term. This will pass and we’ll need to get back on track focusing on our long-term goals. 

My Dad uses a roller to get around and prevent him from falling. He and my Mom went to a restaurant for dinner one night and the server parked the roller in the hallway outside the bathrooms. When it was time to leave, the roller was gone. They played security footage that showed a man coming out of the restroom, taking the roller, rolling by the bar to get his to-go box and walking out the front door. It was a first for the restaurant. They couldn’t imagine that someone would do that! They apologized and actually paid for another roller. Mom now refuses to go to that restaurant for fear that it will happen again. It may, but odds are better that it won’t. 

My point is that we can’t let the unimaginable reality of the present create a fear of the future, long-term at least. I encourage you to think past the present and continue to make long-term plans to reach your goals. When I work on financial planning projections for clients, I run cash flow reports that show how their portfolio will grow over time based on certain assumptions. What if those are wrong? What if we have another 9/11 or another virus hits? Those types of negative returns are accounted for when I run a Monte Carlo simulation. I can tell clients if they can withstand any future fluctuations and if not, we build a strategy that allows them to make plans with confidence. You can do that too.

Remember, stay calm, develop your short-term plan and then step back and focus on your long-term dreams.  We can help you get there!