Can one Survive and Thrive (potentially) in a Financial Crisis? It may not feel like it but it is possible? I am going to try and I hope you will too. For those of you who are following the 10 Step Net Worth Millionaire Plan, hit pause and read below.
The United States, as well as most of the world has entered both a humanitarian and financial crisis. This world crisis has led to or may lead to a personal financial crisis. The U.S. Stock Market lost over 30% of it’s value, layoffs and furloughs are increasing, both large and small businesses are closed and the future is uncertain. We are entering a very scary time with the prospective of taking a pay cut, getting furloughed or losing our jobs.
Now or in the coming months, many of you, including me, will have a financial reality check. I have put together a road map (a process) to Strive and Thrive (potentially) in a Financial Crisis. My family has a plan and we are putting it to work.
Focus on your financial survival with a long term outlook.
You are currently living the choices you made yesterday. The choices you make today will not only affect you now but also in the future.
Let’s all Survive and Thrive (potentially) through this Financial Crisis. Read below for an action plan (keep in mind that everyone who reads this will be at different personal financial points):
PRIORITIZE YOUR FAMILY’S NEEDS
The health, wellness and overall protection of you and your family should be your first priority. At a minimum, keep a roof over your head, food on the table and the utilities on. Also, proper sleep, nutrition and exercise will relieve stress, which is very important now and always.
FINANCIAL LOCK DOWN
This is our family’s new motto “Financial Lock Down.” No unnecessary spending at all. Bare essentials only. If your income is currently the same and you have a healthy emergency fund, then you could keep a few extra expenses. Otherwise, stop all purchases, cut all expenses not necessary to run your day to day life and put off all planned purchases or upgrades (i.e. home improvements, car, trips and etc.). Since many activities have stopped and people are working from home most of your normal expenses have decreased. Your monthly budget should be significantly reduced.
Once you cut costs to a minimum, use the extra money to pay your bills (Survive), increase your emergency fund (Survive and/or Thrive) and continue your investments (Thrive). Continue reading for information about emergency fund and investing.
SWITCH TO SURVIVAL MODE
After cutting costs and expenses, switch to survival mode. I sometimes like to refer to this as being “Cinderella Man .” Besides the story of James J. Braddock’s return to the ring, it also a story about the Great Depression. If you watched this movie closely, their family is trying to survive. They live in a basement dwelling, eat every piece of food they make, they do not buy clothes, he works with a broken hand and etc.
Now it is your “Cinderella Man” moment. IT IS SURVIVAL MODE TIME!!!
At Home
At home, do not be wasteful. Save on everything because it all costs money i.e. water, trash bags, ketchup, lights, sponges, hair cuts, dry cleaning, lunch and etc. This may sound extreme but we are trying to Survive and Thrive (potentially) during this financial crisis. Some examples are below:
- Schedule eating times (no all day snacking)
- Save and eat all leftover meals as nothing should go to waste
- Reduce the amount of paper products you use (napkins, paper towels and etc.)
- Turn off all lights not being used. This is tough, especially with kids as they constantly move from room to room.
- Take shorter showers and open curtains for natural light.
- Unplug/turn off power strips that are not being used i.e. electronics and cell phone chargers especially at night. Unplug lamps and tvs that are rarely used.
At Work
At work, be indispensable. Put yourself in the best position possible to keep your job even with a pay cut. When management is determining who to lay off or furlough, hopefully they will see your value. Also, after the crisis, management will eventually analyze their work force to determine who stepped up, could be counted on and who added value during this time. Now is not the time to be a stickler about working nights or weekends. Get the job done and be AWESOME at it.
Once you save at home, use the extra money to pay your bills (Survive), increase your emergency Fund (Survive and/or Thrive) and continue your investments (Thrive). Continue reading for information about emergency funds and investing.
BUILD YOUR EMERGENCY FUND
CASH!
If you have followed my Net Worth Millionaire Plan, you should have 3-8 months of an Emergency Fund. For most of us, the emergency is here or it will be coming. Regardless of your current emergency fund balance, start saving cash now and as much as you can. CASH IS KING!!! This term still applies today so horde it and make the pile as big as possible.
Increase your emergency fund by adding extra money from the following:
- Those of you with a full salary, transfer as much as you can
- Extra funds from your Financial Lock Down
- Savings from your Survival Mode
- Do not pay extra on your debt (pay your monthly bill but hit pause on any additional principle payments)
- For those receiving a tax refund, I would file your taxes and put that money in your emergency fund. If you will owe taxes, then I suggest you hold off on paying your taxes until the new July 15th filing deadline but put some money aside for it.
A big emergency fund will reduce your stress level, assist you in paying your bills and provide a cushion that will allow you to Survive and Thrive (potentially) in your financial crisis.
CONTINUE INVESTING (If Possible)
I already provided a plan to help you Survive a personal financial crisis. The question now becomes; is it possible to Thrive financially? The answer depends on your current financial state including your employment status. Regardless, I am going to try and I hope you will too but it will take sacrifice, determination and some patience.
Before you try and Thrive during this financial crisis, you must Survive first. Remember, focus on your financial survival with a long term outlook. If possible, take the following steps to Survive and Thrive (potentially) in the future:
- Do not sell your investments right now. The market has lost over 30% of its value. If you sell now, you are losing future value. Eventually, the market will return to the highs of 2020. However, if you have to, sell your after-tax liquid investments first and don’t touch your retirement money.
- Continue your monthly investments. If you currently invest in a retirement account, kids college fund or other after tax investments then maintain your strategy. I am a big fan of Dollar Cost Averaging as you will buy stocks at a 30% discount. For example, if you invest in your companies 401(k) plan on a bi-weekly basis, your money will purchase more shares at the reduced rate.
- Invest any extra money into the market. Any savings invested in the market will purchase share at a much lower price. When the market rises, so will your investment. ***This should only be done if you still have your job, you will continue to be fully employed, have at least a 6 month emergency fund and do not need this money for 3 or more years. Otherwise, this step will be dangerous.
When Money Is Tight
However, if money begins to get tight because you have to take a pay cut, your work hours are reduced, you are furloughed or let go take the following steps in order:
-
-
- Reduce or stop contributing to any after-tax liquid investments.
- Decrease or stop contributing to your kids college fund.
- Lower your 401(k) to the company match.
- Stop all retirement investing. This is a last resort!!!
-
Overall, in a time of personal financial crisis (or potential crisis) it is important to take the necessary steps to protect your money, in the short term, while looking to succeed in the future. The goal is to Survive and Thrive (potentially) by moving into a Financial Lock Down, going into Survival Mode, Building an Emergency Fund and Continuing (if possible) to Invest.
