As many of you may know, I have offered my services pro bono to those who have been recently affected by the COVID-19 pandemic to help provide advice in times of need. Fortunately, most of the folks I have spoken with have options available to meet their needs, though these options are certainly less than ideal. And when I think about what is the best advice I could give (after helping them determine how to pay their most current bills), it is to start planning today to prepare yourself for the next downturn, whether that be a recession, pandemic, global unrest, etc. and the list goes on.
This advice does not only apply to those experiencing hardships, but to all of us, so that when the next adverse event comes, we are prepared. What are some steps you can take to better prepare yourself for unexpected events?
- Establish a minimum 6-month cash reserve, preferable more if close to retirement
- Eliminating bad debt (personal loans, credit cards, etc.)
- Diversifying savings between tax-free & tax-deferred accounts
- Understanding where your money goes each month
- Create a second source of income
- Obtaining lines of credit before you need them (HELOC, etc.)
- Conduct a salary benchmark to ensure you are compensated fairly
- Don’t spend more than you make
In my conversations, I have had people who have done a great job of saving into their 401k at work, but had less than 1 month saved for emergency funds. This required them to take out money from their 401k (not all plans allow for hardship withdrawals or loans), which came with costly taxes and penalties. I spoke with another individual who was paying high premiums for a permanent life insurance policy which they did not need but was sold to them years ago, which by cashing in we were able to free up necessary cash flow.
These situations do not seem to be uncommon and can be solved by dedicating time to reassess and reevaluate your financial situation on a periodic basis, and to avoid pain (emotionally & financially) in the future.
If you recognize you could use assistance or desire an unbiased opinion of your financial situation, please feel free to contact us at FivePointsPlanning.com, or look for a fee-only advisor through XY Planning Network or NAPFA.
Andrew Langdon is a fee-only financial planner based in Peachtree City, GA serving clients in the Greater Atlanta area. FivePoints Financial Planning provides financial planning and investment management services to young families and pre-retirees who are looking to achieve financial freedom. Services are offered on a project or ongoing basis.
Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Andrew Langdon, and all rights are reserved. Read the full Disclaimer.
