Managing a Crisis – A Savings Plan

Periods of uncertainty are meant to test our resilience. This time is no different. From a financial perspective, we can choose to emerge stronger by having a solid savings & budgeting plan ready to go or continue business as usual and spend unnecessarily when we really don’t need to. These points must be stressed during a time when over 30 million Americans are out of work. Unemployment has become a dire reality. The April jobs report showed that 20.5 million jobs were shed – erasing all the job gains generated within the last decade. For those unfortunately out of work, without a cash cushion, it is a challenge to save for tomorrow when you don’t have enough to survive an emergency today. Here’s what you need to consider:

Saving is a lifestyle:

Smart financial decisions start with having a proper lifestyle & attitude. The lifestyle factor comes with having, to some degree, a business mindset. For me personally, if I save a couple of dollars on a purchase, I intend to put those extra dollars to work somewhere else that will ultimately result in more money; whether it is in the stock market or a high yield online savings account. Of course, returns are not guaranteed in the stock market and there is chance you can lose 100% of your investment, but it’s a risk I’m willing to take to grow wealth over time and you should too. Here are some lifestyle changes you can make to grow your savings:

  1. Use budgeting/savings apps, which track your spending and manage your net worth daily. Mint is a great tool. Connecting your credit card, bank accounts, and investment account (if you have one) is key to seeing your total net worth at all times.
  2. Spend with a purpose in mind and don’t solely decide you want something at face value
  3. Set up recurring transfers to high yielding online savings accountthis acts on autopilot and requires minimal effort.

Wealth creation is an attitude:

Generating & saving your wealth is the first step. It starts with a driven and “can do” attitude, to save wherever and whenever you can, if you’re currently facing hardship. During this time of uncertainty, if you’ve been laid off or furloughed, ask yourself if you have 3-6 months of emergency savings. In addition, think about the current debt you have – whether it is student loans, credit cards, mortgage, etc. For student loans, consider taking advantage of provisions of the CARES Act, where the federal government is suspending monthly payments & interest accruals on most federal loans due to the pandemic effective March 13th – September 30th. For private loans, you should negotiate, at the very least, to see if lenders will budge. Unlike federal loans, principal payments may be halted, however, interest may continue to accrue. Next, put a stop to your retirement contributions. Until you can safely pay off your bills today, you can’t save for tomorrow. In credit card debt? Call your credit card company to negotiate a lower interest rate. Credit unions can come in handy as in some cases, credit card debt may be able to be consolidated at a lower interest rate.

Then, save for tomorrow:

Once you’ve taken care of today, you cannot let this crisis go to waste. Don’t wait for tomorrow. Instead, take aggressive steps to build savings & wealth. The worst unemployment rate since the Great Depression should signal a red flag for everyone – no industry has been immune from this downturn. Take a look at which sectors have been hit hardest:

If you’re one of the lucky ones that is still employed, building a solid financial plan of contributing a fixed amount of money each year to an IRA is still just as important. In addition, emergency (uninvested) funds should be placed in a high yield online savings account. Contributions to this online savings account should cap out at a certain amount (3-6 months of expenses). You can also contribute more to this online account if you have a large expense coming up in the next 2-3 years. Anything more, and you risk losing the value of your money due to inflation (which hovers around 2% typically). This is when it pays to invest in the financial markets in companies that pay stable dividends of 3-4%. AFTER you’ve secured yourself financially during this pandemic and are in a comfortable position to repay all debts and other obligations in a timely manner, there is no reason why you shouldn’t have an investment portfolio. Let this crisis be a wake up a call for your financial goals for now and the future.

Money buys you freedom:

It is unfortunate that many Americans are once again left in the dark about financial literacy. The importance of money has to be stressed endlessly in times of uncertainty. However, it should not take a crisis for people to become more financially educated. Money is not the “root of all evil” if used responsibly and to do good for yourself, your family, and others. It is what makes the world go round and is a necessity for a successful & prosperous life. Although it can’t buy you happiness, it certainly buys you freedom in life choices. Time and time again, entire generations are stripped off of their life savings & wealth due to unexpected life events, such as this.

Financial literacy has to start at the roots – to develop a disciplined savings & budgeting mindset on a day to day basis, no matter how small it may be. Savings is the “water” to apply to the roots of your plant, acting as the fuel for the seeds you initially put in, in hopes to watch it grow. Without the seed, water, and roots collectively, you cannot nurture and grow your plant for the long term. Thanks to financial technology, there are countless great platforms to plant your seeds, whether they are savings/budgeting apps or investing apps. Here are a few of them to check out which require minimal effort:

  1. Stash
  2. Robinhood
  3. Acorns
  4. Mint
  5. Clarity money

Why Modern Monetary Theory doesn’t work in individuals’ favor:

To combat the pandemic, the government has gotten itself into an uphill battle of constantly firing money at any problems that hit the US economy. This was even the case before we found out about COVID-19. Take tax reform for example – in the most prosperous economy in decades, the government decide to pass tax reform to “stimulate” the economy, when it was already running well on all cylinders. Since COVID-19 came around, all you hear is a trillion here.. a trillion there, no big deal. What could possibly go wrong? I feel that the cost of this COVID shock is going to be felt for generations. Eventually, something will have to give because the debt load is not sustainable for the country. Expect higher taxes to come to a neighborhood near you in the coming years. Monetary policy of the United States will be tested for generations to come and the view that “governments can borrow infinite sums of money thanks to the federal reserve printing machine” will be questioned.

DISCLAIMER:
This blog and the information contained herein is not a platform for guaranteed success on investments. The companies I mention in my posts are NOT recommendations for investments. The views expressed are my own and I strongly suggest to do your own research prior to making any decisions. Because the information on this blog is based on my personal opinion, research, and experience, it should not be considered professional financial advice. The blog is a discussion forum and not a website for access to financial data. I have no access to material non-public information nor any discrete information on publicly traded companies.

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