Financial advisors are giving their clients 4 pieces of advice
The coronavirus recession has changed financial goals and habits for many Americans. An economy that had begun to recover is now collapsing again, with millions still out of work and others facing prolonged periods of reduced hours and reduced pay.
At the same time, coronavirus cases continue to rise across the US, signaling that the country may not be able to fully recover.
That’s a lot of uncertainty. With that in mind, here are four tips from financial experts to help their clients weather it.
1. Zoom out
All the uncertainty in 2020 has been worrying for consumers, says Ken Thompson, head of US wealth sharing services at TD Bank. However, it is important to consider your goals 10 to 15 years from now. Have they changed? If not, then act with them in mind. Don’t stop investing if you can still afford to do so; If you have the funds, keep saving.
“We’re going through a bit of a roller coaster right now,” says Thompson. But, “the reality is we’ve been through a lot.”
If the past eight months have forced you to rethink what’s important, though, it’s okay to recalibrate. You have to do what helps you get the best night’s sleep, says Thompson. Prioritize what you feel most comfortable with.
2. Focus on what you can control
A lot of things are out of our control, including the stock market. But there are some financial factors that anyone can manage on their own, says Sarah Behr, a financial planner and owner of San Francisco-based Simplify Financial Planning.
Start by making sure all your bills, including rent or mortgage payments and utilities, are on auto-pay. Then if you get “sick and foggy,” the bill will take care of you, “instead of trying to explain to your roommate how to pay your cell phone bill,” says Behr.
Second priority: Make sure your end-of-life planning is done.
“Everybody needs to have the will, the financial power and the right direction for advanced health care,” Behr says. “That’s true if it’s just you and your cat, or if you have a wife and kids.”
While most people are familiar with a will, assigning a financial power of attorney and an advanced health-care directive are just as important if you’re ill or incapacitated, she says. You give someone else — whether it’s your partner or a friend — the ability to access your financial accounts and make medical decisions for you.
3. Rethink spur-of-the-moment decisions
The housing market has been especially hot in 2020, as workers leave big cities for less expensive suburbs and small towns.
But be careful buying and moving, Behr says. Low mortgage rates don’t necessarily mean you can buy a home now or in the near future. Consider what would happen if your job cut your pay or you were laid off. And if you have to tap into your 401(k) to make the down payment, it’s not really affordable, she says.
“What will your monthly cash flow look like with your new housing payment and will you still meet all of your goals”? Behr asks. “Will the down payment drain all your resources or will you still have some savings and some liquidity?”
You should also consider what happens when you have to return to your office or you want to find a new job. If you move to a small town with less job opportunities, you might regret it. Behr advises buying only if you know you can live in the home (and afford the payments) for eight to 10 years.
4. Look for opportunities
Although trimming your expenses won’t solve every financial problem, now is an opportunity to rethink spending and shift it to new priorities, writes Daniel Schultz, an Illinois-based certified financial planner.
She says the easiest categories to tweak in the budget are discretionary expenses like eating out, travel and spending on the kids.
“This is a great time to do some healthy reflection and set realistic spending goals and limits on these categories for the future,” writes Schultz.
Behr agrees. While you may have had some expenses cut in the last few months, most people are grappling with new expenses, such as increased utility bills or, potentially, private school for the kids.
“Really understand your costs,” Behr suggests. “What does a comfortable lifestyle look like to you?”