At one point during my corporate career, I was unexpectedly transitioned out of my current role. At the time, my four kids were five or younger, and I had no idea what I was going to do. At that point in my life, I unfortunately allowed my career to define a large part of who I was.
The economy doesn’t have to be in a recession for you to experience your own recession. It could be any life transition that puts in you both a personal and financial situation that can cause massive amounts of stress and anxiety.
Someone once told me, “don’t ever let a crisis go to waste.” A pandemic or a recession such as we are facing today can provide you with an opportunity to reassess where you are currently at and where you want to go.
Here are eight tactics that can help propel you through a difficult period in your life.
Although the swings during the Coronavirus pandemic have been more volatile than anything we have seen in just about ever, has it caused you to lose sleep?
If so, your asset allocation may be out of alignment. Most investors would love to have only the upward returns that the stock market over the long-term has proven to provide without the downside volatility that comes with it. This scenario is not reasonable.
With a more aggressive asset allocation comes the expectation of higher returns, but it can also come with more negative volatility. Knowing how this makes you feel is crucial when it comes to understanding your investor psychology so that you don’t make a rash decision that could blow up your long-term wealth management plan.
As Mike Tyson once famously said, “Everyone has a plan until they get punched in the face.” Will you stick with your plan when the stock market punches you? If not, lower your return expectations and asset allocation to help you create some level of peace of mind.
Do you have a spending plan? In over 20 years of working within the financial service industry, I have found that most people don’t. People who have a spending plan are typically people who have their financial lives in order.
Knowing where your spending is going directly reflects your personal choices. I have a saying for this, “the checkbook never lies.” To understand your spending allows you to understand what you value. Understanding what you value can help you develop a plan for the life that you want to have versus the life that you currently have.
The spending plan is a starting point for this understanding to happen. Before you know where you may need to make changes, you need to know where you are starting from.
You have likely heard that you should have saved in an emergency or what I call a reserve fund, approximately 3 to 6 months of living expenses. This statement is true; you should have this much built up in a high-yielding money market account that can help you withstand a job loss, furlough, or salary reduction, all of which many people are currently expiring now.
The problem with building a cash war chest of this size is that it is extremely hard. You have so many financial priorities tugging at you, such as saving for retirement, college tuition, kids’ activities, keeping up with your neighbor’s vacations (some people actually do this).
However, just because a task is hard doesn’t mean that you should start or put a plan in place to achieve it. My recommendation has always been to take a balanced approach with your financial goals. Find the right mix of saving between retirement, kids’ education savings, reserve fund, or other financial goals you wish to achieve. If you can set up a system, or develop a habit that helps you save automatically, it makes the savings process much more manageable.
Debt is one of the biggest killers of both personal and financial goals and plans. Debt payments rob you of putting those funds towards the goals that you want to achieve. Having low to manageable debt levels is an overlooked driver to having financial success.
Like building up your reserve fund, avoiding debt can be extremely difficult, especially due to social media influences. When you see people around you going on vacations, buying new cars, etc. the “keeping up with the Jones” effect can kick in, which, if not controlled, can sabotage your wealth management plan.
However, in times of great financial need, you do want to ensure that you have open lines of credit available for you to use if necessary. These lines of credit could include credit cards and a Home Equity Line of Credit (HELOC). Be sure to understand the interest rates and terms because not all lines of credit are created equal.
Now is the time to build up your cash reserves, save more in your investment accounts, and pay down debt. Now is likely not the time to be making big purchases unless it fits within your long-term wealth management plan.
It is always the hardest time to put money to work when the news is at its absolute worst. However, this is precisely the time when you want to start making incremental investments.
Being afraid and having emotions during high times of stress is natural. But being confined by your fears and acting upon your emotions will often work to your disadvantage when times are tough. Several research studies have proven this to be true.
One option that I have found to work during these stressful situations is to make small incremental investments rather than putting a large sum of money to work at once. Again, having an automated strategy, which ties into your long-term wealth management plan can help you get your fears and emotions in check.
The great thing about recessions or any stressful times in our lives is that they find a way to end. Knowing this means that we need to prepare for the recovery, the next phase of our lives. I have written previously, that your career is your most valuable asset.
Similar to putting money to work in the stock market in times of fear and uncertainty generally proves to be an excellent long-term decision, investing in your career during this same period can lead to long-term personal and financial success as well.
I will disagree with Steve Jobs when he said to follow your passion. Instead, figure out what you are good at and make sure that it is a skill that is in demand that someone needs today and in the future. If you are doing something you are good at that fits your strengths, you are more likely to be filled, engaged, and like your career, which will ultimately increase your level of happiness.
Today more than ever, we live in a connected society and world. Thought leaders, experts in specific fields, and people who can help you have never been as easily accessible as they are today. Your objective is simple, reach out to them, connect with them, and see how they can help you.
In times of uncertainty, we need more than ever, greater social support, no matter the form of communication. Your network of both weak and strong ties will be there for you; all you need to do is ask.
During times of stress and anxiety, I remind myself of a slogan that I saw during the 2008/2009 great recession, “tough times don’t last, but tough people do.”
I am here to help and support families in any way that I can. If you are not part of the TAMMA family, I encourage you to discover the partnership that so many families have found in both personal and financial planning that helps to create peace of mind.