In 2008 during the financial crisis I was recruited by the Cleveland CBS affiliate WOIO, to work with their station to help guide everyday citizens through the financial crisis of 2008. Well, here we are again in 2020 dealing with the Coronavirus economic downturn. The results are similar, but the circumstances are different. So, what should you do with your money during this crisis? Here are five things you should do.
1. Slow down, meditate, pray
Be calm, take a moment to pray or meditate, or perhaps both, and mentally prepare and commit to putting yourself in a better financial position. Wealth and financial security are as much a mindset as they are strategy and discipline.
One of the fundamentals of fixing any situation is an analysis of the problem, to fix or improve your financial life is no different. The analysis should include evaluating your available cash, income, and your monthly bill and debt payments. You must do a baseline analysis to understand where you are and then determine if there are weaknesses and issues to be addressed.
2. Revisit your goals
Now you have evaluated the baseline of where your finances are, it is time to reflect on your goals. During a downturn, the losses and the turbulence in the market scares people into acting irrationally. They sell stocks because they are losing money. They buy stocks because they are at lower prices or as some say, “On sale.” Either strategy can be a good choice, but first you must consider what was your initial plan for the investments. If the investments are for retirement or college savings, you will want to review your timeline. If you have time, did you initially plan on leaving the investments in place for the long-term? What’s changed? Long-term investors should expect market fluctuations, this is why dollar-cost-averaging works. If the Investment was for something more short-term, then you must decide if this is the best time to sell. The short-term assets should have been in more stable investments like CDs or money market accounts, but don’t beat yourself up if you didn’t move the money in time. Just move forward. When it comes to buying stocks, it goes back to what is the plan? What is the purpose of buying more stocks? What’s the goal? If you can identify your goal, this should give you guidance to help you determine what to buy, if anything.
The other issue goes a little deeper. It’s an analysis of how strong the companies are you’re buying or selling, especially during a downturn. Is the company strong financially? Are the products in strong demand? At this moment some companies remain strong, but others may be weakened by the impacts of the virus. For instance, a company that sells hand sanitizer may be stronger now, while restaurants may suffer. Total analysis of companies is outside the scope of this article, a good financial advisor can give you guidance. The message is the strength of the company should be part of your decision whether to buy or sell.
A downturn is also a good time to re-evaluate your goals. This should be the fun part! Yes, you should have goals to eliminate debt. You should also have goals for accumulating savings and if you have children, you may want to have goals to assure they have what they need, college being a typical goal for savings, but you should also have fun here. What do you really want? Where do you want to live? Do you want to travel? Buy a home? A car? Do you want to live on an island? Do you want to have a million dollars or more? I can tell you all your goals can come true. I am a true believer people get what they desire if they plan and work towards it. Refine your goals, align your investments, and keep moving forward.
3. What opportunities for additional income exist?
Another issue is to raise or maintain your income. During a downturn, opportunities present themselves. Who knew having an inventory of toilet paper could be so profitable? I know entrepreneurs who made good profits selling this item. There are a lot of opportunities, search for them. There are several ways to do this. One option is to get a side hustle, also known as a part-time business. Is there an emergency related service you can provide to others? You could be doing well by doing good for others. Find the opportunities and stabilize your income.
4. Evaluate your debt, bills, and potential for refinancing
Now let’s talk about debt. Evaluate what debts you have outstanding. Could you pay some debts off? Can you refinance debts and take advantage of the very low interest rate environment we’re in? You may now be asking yourself, “I thought this article was about investing. Why are we talking about debt?” Well, the process I am taking you through is the best way to prepare to maximize your money. It is a very strategic approach and once you start to implement the process, you will start to see the benefits manifests themselves repeatedly. The reason to evaluate your debt is simple. If you have a credit card, the interest rates the bank charges is typically at least 10%. Also, at the time I am wrote this article, the interest rate on a Passbook Savings account has an average rate of .01% and a one-year Certificate of Deposit is at .35%. Does it make sense to save money at .01% or even .35% or put money into a volatile investment when you’re paying in excess of 10% for a credit card or other debts. No, it doesn’t make sense. So, consider paying down debt.
Another part of being secure is lowering bills, which is different than debt. For instance, consider your gym or other services that are now temporarily closed. Its time evaluate do you really use this service? For me, I have an unlimited car wash membership that I don’t maximize. It’s a great time to be more conscious about your money so you can pull through unscathed.
5. Watch out for scams
During a downturn, unfortunately criminals know people are vulnerable. They are searching for ways to make money. Thieves take advantage of these vulnerabilities. I just saw post on social media for people to sign up for the census in order to get the proposed stimulus check. My experience tells me this process will go through the IRS. The IRS already has most people’s payment information, they know your age, marital status, etc. Completing the census is very important, but I don’t think it will be connected to the stimulus payment, so this may be someone phishing for personal information. Make sure to follow the guidelines from the Census Bureau mailer or directly form the US Census Bureau site.
You can do it! Continue to stay in control of your money.
Mark A. Parks, Jr, CPA, MBA is the author of the best-selling book, “The Essential Guide to Money and Investments for Women.” Follow him or get your copy at authormarkaparksjr.com or you can get a copy of the book direct from Amazon.