Fear can drive people to do things they’ll later regret. Right now there’s a lot of fear. Some of it is justified. Some is irrational. When addressing your financial state during an emergency or a time of crisis, we should be slow and thoughtful.
Most Americans don’t have enough cash to weather an emergency (even one of just $400). Many may have just become painfully aware of that. Others may soon realize that. But no one will be even the slightest bit better off by panicking or making rash and inappropriate decisions.
The best time to prepare for a crisis is before it happens. When unprepared the next best time to prepare is as soon as possible. It’s too late to prepare in advance.
It’s not too late to take steps to get through this as best as you possibly can from where you’re at now.
The current COVID-19 national emergency is likely to be the most severe emergency many will face in their lifetimes. Like all emergencies, it will eventually be over and no longer an emergency. At some point we will be able to look back and evaluate the steps and actions we took with the perfect clarity of hindsight.
We don’t have that luxury now. Now we need to make the decisions we make in context of constant and often extreme change. Things are happening fast; likewise, responses have begun to move at a very brisk pace. What’s true today may not be true next week or even tomorrow.
What we should do with our finances is independent of what’s happening out in the world. The details will help inform us and present some specific opportunities, but our financial steps should remain constant, even during an emergency.
Know where you stand. Know what you have to work with and what you need to get by.
Inventory your cash accounts and cash assets. This, together with any dependable sources of income, are what you can plan on having to work with. You should map out where you are now as well as any income you can expect to receive in the next month.
Map out what you need to get by. For your first pass, consider everything you need or realistically want to do — knowing you may be limited if you’re one of the many who will be staying in social isolation at home.
If there’s a shortfall you’ll need to prioritize. Some people will get through this with their normal income; others will have greater challenges. There are many things in flux, with more changing all the time.
Many financial institutions have begun to offer options for those facing financial hardship during the current crisis. Some are sending out emails to their customers. You can also find out information for your specific institutions by visiting their websites.
These options may be useful if you’re facing a shortfall. I’ve seen some institutions offering forbearance on their mortgages, the opportunity to forgo payments on other debts temporarily; there’s a lot of opportunities specific to the type of institution and account .
Don’t hesitate to contact your financial institutions — but be prepared that service times may be slow. Many institutions are transitioning their services to remote or facing a large volume of inquiries. Be patient but persistent.
The Most Important Financial Changes During an Emergency
The most important financial changes are the ones you shouldn’t make. You shouldn’t stop retirement plan contributions if they’re not causing you financial difficulty or hardship.
You shouldn’t make drastic changes to allocations or move everything to cash. Hindsight will show exactly the perfect time to make moves; foresight is that no move is better than the wrong move.
People move assets because of fear. If you’re in the market, hopefully you’re in for the right reasons and doing things correctly. And that means you’re not in the market with your emergency fund or your next year’s worth of retirement expenses. This is the ultimate example of why you don’t do that.
Those who pull out of the market during a down period invariably end up buying back in at a higher cost — they compound their loss. If fear pulls you out, fear will keep you out. People like to think they’ll buy back in at the bottom.
The bottom is visible only once the market has recovered a bit; the bottom is only visible in hindsight.
You can’t buy back in at the bottom because the bottom isn’t visible at the time.
Maintain Contributions (Where Possible)
Some people will be tempted to suspend their retirement plan contributions during a down market. This is exactly the opposite of what is financially prudent, even if there is an emergency.
When it comes time to sell shares to fund retirement two things will matter: the share price at the time you are selling and the number of shares you have.
During a down market share prices drop. When you’re making a systematic purchase, such as a typical payroll deduction of a fixed number of dollars per week, your fixed amount buys more shares during a down market. No one knows what they’ll be worth when you retire, but we’ve recovered from every prior market crisis. Every time, every one.
Down markets are uncomfortable. They’re uncomfortable because they’re unpredictable, we don’t know how far down things will go or how long this will last. But down markets are buying opportunities.
Change Is Now the Normal
Change is now the normal, for the time being. Some institutions will have important information they need to get to you. To keep informed, it will be important to pay attention to your employer, your banks and financial institutions, government employees who can actually do something, the CDC and the WHO.
There’s also a lot of misinformation. That’s why primary sources are key. There are a lot of people who know very little doing a lot of talking. Those who know a lot are doing less talking but may have important things to say.
It’s important to be selective with news organizations and social media. The best of intent doesn’t matter if the information isn’t the latest or the most accurate.
There are no financial decisions that need to be rushed — even in an emergency. Be careful, think things through. Rely on quality sources and don’t give in to the fear and panic.
Attitude Is Everything
There are many others who may need some help and assistance out there. There are elderly and disabled people who could use a call or perhaps some tangible assistance that can be provided at an appropriate social distance.
Some people will see the opportunity to make the best use of themselves and of the time they have during this crisis. Others will watch television in abject fear. You have choices.
Many people are giving their houses a thorough cleaning. I’ve talked to a number of people who will have an employment interruption who have plans to make the most of it. They’re doing something for themselves or their place, but they’re making a conscious choice to make the most of a bad situation.
Some are working out more, some are painting rooms or finishing other projects. They’re maintaining a positive attitude and maintaining hope.
Health and Hope
Health, as always, is more important than finances. Sometimes we have to make tough financial choices to do the best thing health-wise. We can always recover our finances. There’s no financial situation that’s too bad to be improved, no damaged credit that can’t be repaired. It can be costly and time consuming, but it can be done.
Not all health situations are the same. We can’t take risks with our health and expect that we can always undo the damage.
Health has to take precedence over your financial status, especially during an emergency.
Maintaining our mental health through a difficult time is equally important. It is amazing how being other-centered during a difficult time can lighten our own burdens and reduce our stress levels. Do for others. Support local businesses where possible. Keep the health of yourself and your family as number one. Together we can get through this. Together we will.