September 15, 2020

How to be Fiscally Responsible During Times of Uncertainty

By Bart Zandbergen CFP

With the current market volatility and economic uncertainty we are facing in our nation currently, many people find themselves stressed about money and their financial situation. During times like these, it’s easy to either lose focus on investing or become hyper focused on investing. Your situation is unique, and there is no one size fits all strategy, but here are some tips to help you stay fiscally responsible during times of uncertainty.

Build up your emergency savings fund

One of the smartest things you can do during times of economic uncertainty is to build up your emergency savings fund – a stash of money you have set aside to deal with the surprises that life inevitably can throw our way. A job loss, unexpected medical bills or home repairs, and car troubles are a few scenarios that might require extra cash.

An easy way to ensure you’re consistently building up your emergency savings fund is to set up automatic monthly transfers from checking to a specified savings account. Try to set aside 3-6 months of expenses in your emergency savings fund; that way, if you encounter a job loss, you’ll be a lot less stressed knowing you are financially prepared.

Track spending

No one likes the “b-word” – meaning “budget.”  But budgets can be helpful, especially if you aren’t really sure what your regular monthly expenditures are. Budgets can make it easier to identify wasteful spending and can help prevent overspending.

Most wealthy individuals don’t necessarily have a budget, but they do track spending. Keeping your spending low and avoiding “lifestyle” creep can free up money so that you can invest and save more.

Deal with high-interest debt

When we are dealing with an uncertain economy like we are now, if you have the means, consider paying down any high-interest debt you might be carrying, like credit cards.

Paying down your most aggressive debt will help you save on the amount of interest you pay and lower your minimum payment; in case you end up in a challenging financial situation.

Have a plan and stick to it

Human beings (that means you and me) are emotional creatures. We can do some crazy stuff when under the influence of emotions! That includes impulsive spending or things like taking money out of the market at precisely the wrong time.  

Market volatility is unsettling, but you can’t let fear drive your decisions. Part of being fiscally responsible during uncertain times is sticking to a plan. You’ve heard me say this before, but down markets eventually recover. Since 1946, the S&P 500 has weathered 12 bear markets (declines of 20% or more from a 52-week high) on its way to 7% annualized gains over that period. Markets always tend to stabilize over time.

Make sure you have a solid investment strategy and stick to it. Don’t make any hasty decisions under duress. Your future self will thank you for it!

Keep investing if you can

If your job is stable, it is important to continue investing if you can. Remember, it’s a marathon, not a sprint, and make sure you have a diversified position. Take advantage of opportunities that come up when you can, whether it be by adding cash or reallocating your portfolio.

If you’ve lost your job or find yourself in a precarious financial position and cannot keep contributing, don’t get discouraged about hitting the pause button. Deal with the issues in front of you, and when you can, pick up where you left off.

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