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March 31, 2020

Financial Management: Your Personal Finance Pandemic Survival Kit

Financial Management: Filling out a form.

The headlines about the coronavirus and reports of how it will impact the economy and potentially lead to a recession are all a cause for concern. The total impact of the extreme slowdown and virtual shutdown of many businesses is yet to be seen. However, many elements of how to manage any financial crisis still apply.

Success hinges on the financial planning you do before you feel the impact of the crisis, during the period if you are affected, and when things revert back to normal. The following provides some of the things you’ll want to do and avoid doing and how to handle changes, including the return to normal.

Evaluate your risk tolerance and rebalance if needed.

Make sure you have the right amount of your portfolio in stocks, bonds, and cash based on your time frame and comfort with risk. If your money is invested in a target date fund or other asset allocation fund, then this will already be done for you. If you’ve created your own mix, it might be time to reallocate between stocks and bonds.

Success strategy: Take a risk tolerance questionnaire or work with a financial professional to make sure that you have a diversified portfolio.

Stay focused on the long term and your goals.

Remember, the important thing is to stay diversified and focused on your long-term goals. When it comes to investing during a downturn, the answer is often not to do something. It is to just stand there (and maybe avoid checking your accounts too much). If anything, you might just get excited about the opportunity to buy investments “on sale” the next time you get paid and contribute to your 401(k) plan.

Success strategy: Consider this a great buying opportunity. By continuing to invest the same dollar amount on a regular basis (like you’re doing with your retirement plan), you’re actually buying more shares, because the price of shares is currently low. When the price goes back up, you’ll be buying fewer shares. Over the long-term this provides you with an opportunity to lower your average cost per share. This is also known as dollar cost averaging.

What to Do: Planning Before an Income Loss

Aim to have 3 months’ worth of expenses saved for emergencies.

In an emergency, cash is truly king. No matter how adequate your emergency savings are, you never know how long you might need to cover expenses in the event of a loss of income. The rule of thumb is 3 – 6 months of expenses in a savings account.

The specific amount you decide is best for you and your family will depend on your personal comfort level, the availability of other sources of financial support, and how risky your income is. Regardless of the amount, make sure the money is easily accessible in a savings account or safely secured in your emergency kit.

Success strategy: Consider opening a separate emergency savings account, and set up automatic deposits into that account.

Create a crisis budget.

This budget eliminates any non-essential spending and drills down to exactly how much you would need for the essentials like food, shelter and transportation. Knowing how much you need to survive will help prevent you from panicking because you know exactly what to cut back on and how long your savings would last.

Success strategy: Consider using budgeting software through your bank, but also research other budgeting programs like Mint.com or YNAB.com. If you are a pen and paper person, print out your statements and jot everything down or put it in a spreadsheet. Tracking your spending will help you understand exactly where your money is going so that you can stay on track for your financial goals.

Prepare to work from home or have your kids at home.

Determine the contingency plans for your family. Make sure you think about how that might need to be worked out between you, (your partner if applicable), and your employer. Many employers are creating flexibility and instituting specific plans in light of the situation. Reach out to them to see what they are prepared to do to help you out.

If your children are sent home, check with their school district to see if learning will occur virtually. Districts may issue assistance, such as loaning computers or iPads or continuing to provide food service for children.

Success strategy: Review your benefits. Perhaps you have back up childcare benefits or a discount. Some employers provide benefits around a care provider that will come to your home or a nanny.

Plan in anticipation of getting sick for a prolonged period of time.

Confirm if your employer might offer paid sick or family leave. Take time to review your company benefits. Contact HR to make sure you are taking advantage of everything they are prepared to and currently offer.

In addition, your state might offer unemployment insurance benefits during this period or assistance with necessities. For example, California recently announced measures to begin providing these benefits to their residents.

Success strategy: Congress recently passed the Families First Coronavirus Response Act to provide emergency relief across the board. The legislation is aimed at providing free testing, food assistance, unemployment benefits and some paid leave.

Handling Change: Implementing Your Plan

Contact creditors immediately.

Even if you have an emergency fund, we have no idea how long a loss of income might last. As a safety measure, contact your creditors and inform them of your status. Hopefully, most of your creditors are well aware of the impact of the virus on their clients and will offer to work with you if you get to a point where you could no longer pay your bills. You might realize that the more you communicate with your creditors, the more willing they will be to work with you.

Adjust your lifestyle.

Implement the crisis budget and immediately adjust your lifestyle to this new circumstance. Basically, any expense that does not involve the essentials such as food, shelter and transportation should come to a halt. This will help you weather this transitional period.

The Return to Normal: Recovery

Resist the urge to splurge.

After a crisis, there might be a temptation to immediately go back to your prior spending, but doing that will prevent you from rebuilding your emergency savings. Plan to stick to your crisis budget until your emergency savings are rebuilt.

Survive the ‘stress test’.

Making this decision now can help prepare you and your family and make this a minor blip on your finances rather than a life-altering crisis. No one’s financial situation is guaranteed, so we all must plan for unforeseen circumstances by:

  • Focusing on the long term and your goals when it comes to investing
  • Having an emergency savings account
  • Having an idea of how much you need to maintain food, shelter and transportation
  • Being able to live off a spending plan
  • Immediately adjusting your lifestyle when a crisis strikes
  • Knowing your benefits to deal with loss of childcare, workplace changes, loss of income and handling sickness

For More COVID-19 Information

We know you’re concerned about the impacts of COVID-19 on your financial wellbeing, but CBIZ Retirement Plan Services is here to help guide you through these turbulent times. Please contact your retirement plan consultant with any questions or concerns you have.

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CBIZ Retirement Plan Services is a trade name under which certain subsidiaries of CBIZ, Inc. (NYSE Listed: CBZ) market investment advisory, investment management, third party administration, actuarial and other retirement plan services. Investments, investment advisory and investment management services offered through CBIZ Financial Solutions, Inc., Member FINRA, SIPC and SEC Registered Investment Adviser, dba CBIZ Retirement Plan Advisory Services. Investment advisory and investment management services may also be offered through CBIZ Investment Advisory Services, LLC, SEC Registered Investment Adviser. Third party administration, actuarial and other consulting services offered through CBIZ Benefits & Insurance Services, Inc.

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