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When the pandemic first hit, no one imagined it would last this long. For many of us, closures and lockdown crippled our finances. Prior to 2020, we’d saved money in case we lost our job, had unexpected household expenses, or encountered any serious health problems. However, when the entire world experiences a global health crisis, no matter how much you planned, you couldn’t have been ready for it.
One thing the pandemic has taught us is that nothing in life is certain. That said, while making a solid financial plan can be difficult, it’s not impossible. Here are some smart steps to take to manage your finances after the pandemic so you can be more prepared in the future.
Six Months of Emergency Funds is the Minimum
Putting money aside into an emergency fund has always been the first step in financial planning. Under normal circumstances, giving yourself a cushion to cover expenses and pay bills until you bounced back from hardship typically meant covering a period of three to six months.
However, the pandemic caused government-imposed shutdowns that have affected us for far longer than the above time frame. As we all begin to get back on our feet, start building your savings with enough to last for at least six months—ideally, 12. You will rest a lot easier at night knowing you have a safety net of this size.
Don’t Trade Stocks Out of Fear
I hate to admit it, but I made this mistake right when the pandemic hit. Everyone in the world panicked from the uncertainty, and the market started to tank. I regrettably sold off many of my holdings because I, too, was scared. When the market falls the way it did, your first instinct is to get out. But that isn’t always your best bet.
Reactionary trading is sometimes inevitable, but you must resist the urge. Many times the market will correct itself, and smart investors jump in when stocks dip and take advantage of the discount. Considering everything that transpired last year, not many assumed the market would bounce back the way it has. However, this irrational exuberance has shown us that there is always money to be made in the market, even in the middle of a crisis.
Estate Planning Is Important at Any Age or Income
Estate planning seems like a concept that should be reserved for the wealthy and/or elderly. However, COVID has taught us that estate planning is vital at any age or income level. If you become incapacitated or die, having your estate in order will protect your assets and offspring. A Power of Attorney, living will, and healthcare proxy are directives for individuals to carry out your wishes in the event that something happens to you.
If researching and organizing these documents sounds overwhelming to you, don’t fret! A trusted financial advisor can steer you in the right direction. Need help finding one? CHIP, a free service that I have personally used, will match you with a trusted advisor to assist you in any way you need. It recommended an amazing advisor, Tanya Frias, CFP®, ChSNC, who has provided business advice, professional referrals, and helped me map out a financial plan, feel free to reach out to her here: Calendar.
Diversify Your Investments Across Industries
If you’ve heard it once, you have probably heard it a thousand times: diversify your investments. Of course, having stocks, bonds, mutual funds, property, etc. is important, but let’s look a step further. How diverse are your investments across different sectors? Are you holding stock in a variety of industries, like financial, manufacturing, travel, retail, and pharmaceuticals?
Many sectors, like travel, entertainment, and some luxury retailers, took a big hit during COVID. However, the increase in wealth by Jeff Bezos, Elon Musk, and many others, proves that some industries are thriving. I am not suggesting that you go out and buy Amazon and Telsa stock now (although that would’ve been a great tip in 2017, for all of you with time machines). However, I do suggest that you look at your portfolio—or get one, if you haven’t already—and make sure that you are spreading your money across the board.
Budgeting is Crucial
The pandemic caused many of us to tighten our purse strings, so to speak. When you’ve lost your job or your income is reduced, often you need to find ways to cut back. However, how can you successfully do this, if you don’t know where you are spending your money?
Having a budget is crucial because it is more than just saving money; it is a tool you can use to track your income and expenses. By doing so, you will be able to see exactly where you are spending, giving you the insight needed to manage your money intelligently. Mint.com will help you create a budget easily, and I recommend reviewing it monthly to make sure you are on track.