How to Financially Prepare for the Next Pandemic
First, an announcement! Elizabeth Westendorf is a fee-only, fiduciary financial planner with Fearless Finance® by Atwood Financial Planning. She’s partnering with Cleveland Eastside Moms Group to host a free “Finances 101” webinar next week on Monday, July 6th at 7:00pm EDT. If you have a question you want Elizabeth to answer in that webinar, email her at [email protected]. Register for that webinar here.
Well, 2020 has certainly been a memorable year so far. Can you believe March was only a few months ago? As things start opening back up, I’m hearing a lot about how there’s a risk of a second wave of illness from COVID-19. If that wave is anywhere close to the size of the first one, it’ll likely also come with some economic impacts. So, in light of that, I wanted to talk about the things you can do RIGHT NOW to prepare financially for the next pandemic (or for Round 2 of this one).
- Roll with the punches. I’m sure your spending has changed at least a little since this pandemic started. Maybe you’re eating out less. Maybe you had to cancel vacation plans or summer camp. None of this is fun, but there is a silver lining. All of that spending you’re not currently doing? See if you can divert some of that extra money to your emergency fund. I recommend having 3-6 months of your monthly expenses saved in that fund, but if your job is at all vulnerable to another pandemic or a recession, definitely aim for that 6-month mark. Building up that emergency fund is one of the most important things you can do for your financial health!
- Figure out what you can cut from your budget before it’s necessary. A lot of us had to deal with some financial stress over the last few months. Even if you had a steady paycheck, watching the stock market likely gave you whiplash (which is why I advise not watching!). It’s a good idea to have a game plan in place before the stuff hits the fan. If you lose your income or your hours are reduced, where will that money come from? Can you cut subscriptions? Can you lower your discretionary funding? Do you know what relief programs are available and what you qualify for? What are your options for alternative work, even if it’s temporary? Do that brainstorming now, before you’re overwhelmed.
- Make sure you have enough flexibility in your cash flow. If you’re trying to do #2 and the list of things you can cut is short, that’s a problem. I recommend that a max of 40% of your take-home pay be devoted to fixed, mandatory expenses like housing, car payments, student loans, etc. If you have more than that tied up in those expenses, it puts you in a vulnerable position when you have to cut back because there’s less room for changes. When I work with clients that have cash flow problems, it’s often because they’re spending too much on those fixed expenses. They might have 20% of their cash flow tied up in student loan payments, or they’re leasing a car that they can’t afford. In the middle of a financial emergency, it’s hard to change your spending in those categories quickly. But if you’re in a good place now, can you make changes? This isn’t always a fun exercise. It might mean moving to cheaper housing, getting a cheaper car (or dropping down to one car), or requesting a different payment plan on debt. This is an area where it might be helpful to talk to a professional since all of these changes can be pretty daunting. And again, they’re only really necessary if you’re currently spending too much on those categories. BUT if that applies to you, you want to fix that fast.
This pandemic has shown us all how vulnerable our status quo can be. Preparing financially for another one (or something else like this) won’t make everything okay, but it will reduce a huge area of stress for most families.
If you’re looking for more money tips, Fearless Finance® by Atwood Financial Planning is posting a series of daily advice on Instagram called “Fearless Finance: COVID Edition.” Follow us at @fearlessfinancebyafp to see those tips! If you have a financial question you’d like me to answer on social media, shoot me an email or a DM. I can be reached at [email protected] Fearless Finance® by Atwood Financial Planning is a fee-only, fiduciary financial planner. It means we charge clients by the hour and offer unconflicted, unbiased advice. We don’t sell products or earn commissions. We’re here to help.
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