2020 has brought the term “financial anxiety” to a new height. Many women are wrought with fears around their family’s health, mental, emotional and financial well being. And while the COVID-19 pandemic is having a devastating impact on the nation’s economy, there are opportunities to use this time to get an accurate assessment of your current financial situation and establish habits that will put you on a stronger financial footing going forward.
- Lay the Foundation With the medical and health uncertainties created during COVID, a heightened sense of awareness has been building around proper estate planning and protection. Go back to the basics and make sure you and your family are protected with a proper will, including medical and health directives and a power of attorney. A will is not a set it and forget it document. If your will has not been reviewed in the past ten years it is time to get a fresh look at the document. With ever changing tax and estate laws, it is important to know that your will and estate documents are drafted in a flexible manner. As a result of COVID, people have become more aware of their own health, as well as that of their loved ones. If you and your loved ones are not properly insured, now is the time to start that process as well. As COVID has taught us, the future can bring unforeseen levels of uncertainty. Lock in your insurability today for your family’s future.
- Construct a Budget that Helps You Recapture Lost Dollars The lifestyle changes brought on by COVID have given many people an opportunity to clearly identify wants from needs. In addition, people’s spending habits have changed as a result of changes in work habits and lifestyle. As an example, that expensive gym membership may have been replaced with a home exercise solution. Often these changes have resulted in a decrease in monthly spending. Take note of these changes so you can recapture these dollars and use them more effectively in your overall financial plan. Too often, these savings become a “mindset change” only and never result in extra dollars in the bank. Don’t forget to plan for expenses that will return in the future. Creating a pre and post COVID budget may help highlight some of these areas. One way to approach this is to track your checking account flows for the 9 months pre COVID and during COVID. Then compare the two. Most importantly, a budget is not worth the paper it is printed on if it is not realistic. Setting unrealistic savings goals does not fool anyone but your bank account. An unrealistic budget is also one that is much less likely to be continued post pandemic. A 2018 American Institute of CPAs survey found that only 39 percent of respondents were following a budget, down from 58 percent in 2015. A budget is important in good as well as tough times and can prevent a costly over indulgent purchase.
- Review Your Debt Debt in and of itself is not necessarily bad. What is important is to review the types of debt you have and the interest rates you are being charged. After a careful review you are able to identify the places where debt makes sense in your life. And each area of debt should have its own pay off plan. Just like your wills, it is important to review debt to see if more efficient opportunities exist for your capital. During COVID many homeowners have found it an opportune time to refinance their home mortgage. Do not make the mistake of creating extra cash flow only to see it disappear each month as discussed above. A proper financial plan and budget aligns the cost savings from a refinance with a plan to redeploy the funds in a more efficient manner, such as funding future retirement needs.
- Build an Emergency Fund There is nothing that brings the need for an Emergency Fund to light like an emergency. The speed at which the nation moved from “concern” to “pandemic” created a sense of panic for many that has not subsided. With many companies declaring bankruptcy or announcing mass layoffs, a feeling of financial uncertainty has become the norm. Add in a volatile market environment and the benefit of a well laid emergency fund is now completely clear. Setting aside 3-6 months of living expenses takes the pressure off of tapping into retirement savings in a time of extreme need.
- Fill Your Retirement Gap Too often women fall victim to not having their own bucket for retirement. This results from a lifelong series of events such as lower starting salaries, interrupted careers and less opportunities for employer match in a 401(k). Combine this phenomena with the fact that women, who will statistically outlive men, will also be faced with higher healthcare costs in retirement, and the need for women to focus on a retirement bucket of their own becomes a crucial lesson. Time is a gift when it comes to saving for retirement. So the earlier you can create a plan that has a dedicated savings component towards retirement, the better. Better still, this plan should be diversified with market and non-market exposure to maximize sources of income in retirement. Market volatility is a real risk in retirement. If you need to take retirement income during a down market you are essentially “locking-in” those losses. This can have a significant impact on your retirement assets. A proper retirement plan not only “fills the gap” but also improves your retirement income distribution strategy.