Austin Colby, CFP®, MBA
As we’re in the midst of the COVID-19 health and financial crisis, you likely have been watching the stock market decline and worrying, “what does this mean for me?”
While we won’t know the extent of the overall economic impact for quite some time, we know this forced economic contraction will be severe in the short-run.
However, one constant remains true no matter the short-term stock market/economic turmoil that may occur: good financial behaviors never go into recession.
We can get caught up with fear-based headlines and temporary crashes in the stock markets, but those two factors are entirely out of our control. Focusing on prudent ongoing financial behaviors will always be a recession-proof habit that pays dividends year over year.
Sometimes getting back to the basics is a great way to get your focus back on what matters. Over the coming weeks, we will sprinkle in some good reminders from Personal Finance 101…Wealth Group style.
- Have a liquid emergency fund
- As we are witnessing now, millions of Americans are losing their jobs. Albeit temporarily, this will still cause serious financial strain on U.S. households.
- Having a liquid emergency fund that can cover 3-6 months of fixed necessary expenses is a great way to insulate you from short-term unemployment and the accompanying fear that comes with it
- Of course, knowing that fixed necessary expense number is step one. I know about three families that enjoy budgeting/tracking expenses. However, the power of knowing where every one of our dollars goes is paramount.
- Opt for shorter-term mortgages and 20% down payments
- You can read some of our thoughts regarding the benefits of a 15-year mortgage here.
- Again, in times of trouble and economic strain, putting yourself in an excellent equity position on your home will help eliminate the risk of being forced to sell at an inopportune time.
- Invest at least 15% of your income annually
- We – meaning Americans as a whole – have a tendency to greatly increase our lifestyle when things are going well financially.
- Increasing your savings % in years where you have big income jumps is a great way to make giant strides towards financial freedom.
- Early this year, we had one of our smart and successful client couples earn a massive bonus paid to them in January. In one paycheck, they earned more money than they had in any single calendar year of their lives! That could have been time to upgrade the home, expand the auto collection, or fill-in-the-blank lifestyle choice. Instead, they added nearly 100% of that available paycheck amount to their long-term portfolio and likely pushed up their retirement date by a significant amount.
- We enjoy helping our clients find a healthy balance between splurging today (which has a place in any financial plan!) and saving for tomorrow.
- Read here to get some more of our thoughts about going beyond fully funding your 401k.
As I’ve written about before, the secret to being a good investor is to invest. Ongoing, meaningful investing will serve you well over your lifetime. Even during the difficult and uncertain times such as these. Staying the course and staying calm are two additional habits of a good investor. Times like these give us an opportunity to practice both.
We continue to keep our office closed to the public and have rescheduled all coming meetings to phone/Zoom calls or postponed to a later date. Because we are considered an essential business as outlined by the Department of Homeland Security and confirmed by Treasury Secretary Mnuchin, we are committed to remaining open to service all of our clients’ needs.