the ability to be happy, successful, etc. again after something difficult or bad has happened.
Lately we’ve been thinking a lot about financial resilience: hopeful thoughts about the resilience of the stock market, our economy, and of course, our personal financial lives. As we slowly recover from the multitudinous effects of Covid-19, many of us will come away from this challenge stronger in our family and community lives. And, while many of us will need time to stabilize our financial lives, as we do, I believe there are opportunities to come back stronger in this area too.
Psychologists tell us that resilience is about adapting to adversity and rebounding from it, but that it may also be a source of personal growth, requiring us to flex new muscles and build new strengths. Thinking about the impacts that COVID-19 has had on your life in 2020, the changes you were forced into, is it all negative? Or are there some new muscles you’ve built that could help improve your financial resilience in the future? Here’s a few possibilities to consider…
New shopping behaviors
Going into a store armed with a shopping list and laser-like focus, arch enemies of the impulse purchase. Have you been shopping more efficiently and cost effectively?
Applying the “30 day rule”. A frequently cited consumer best practice is to allow 30 days to pass before making a significant purchase to see if you are still as desirous of the item on day 30 as you were on day one. We didn’t do this willingly, but since we had to postpone some non-essential purchases, dollars may have been saved as ardor cooled -- the “30 day rule” in action!
As we dusted off our boardgames, playing cards and puzzles we remembered that fun doesn’t always have to involve opening a wallet.
Flexible work arrangements
What will it take to convince our employers to let us flex our hours or try working remotely? Well this was extreme and please let’s not do it again, but we may have proven our case. Flexible arrangements, responsibly used, have kept us going in countless instances and have yielded much-needed ancillary financial benefits: more efficient use of time by erasing commutes and better integration of work/life demands, reduction of automobile fuel and wear-and-tear costs.
Having a household Emergency Fund
An emergency fund is money put aside in a secure bank account for a “rainy day”. Ideally an emergency fund holds 3-6 months of your household’s earnings in an account distinct from your household’s operating checking account, but as a starting point, even an $1,000 emergency fund can be a big help. During this pandemic, emergency funds have likely been accessed in countless instances, as a last bastion against having to run up credit card debt. Thank goodness for them! When your finances stabilize, make building one, or refreshing one, a top priority.
Emergency Fund for small business
America is the land of opportunity. Our system is far from perfect however we are proud to call America home for a myriad of reasons. A large percentage of our economy is made of small business owners. It’s a daunting path: roughly 20% of businesses fail in their first year, 30% in their second year, and those numbers are likely to be grimmer this year due to the pandemic. There are many reasons for businesses not to “make it”, but cash flow likely tops the list. Sufficiency of operating capital (a/k/a money) is a challenge that most small business owners face, and credit cards are often the “go-to” in a pinch for small business owners. High interest payments can eat up profits quickly and lead to demise in a normal business environment let alone the ultra-challenging business environment we’ve seen lately. Perhaps it’s time for small business owners to re-evaluate how they look at cash-flow and emergency savings. If setting aside savings for 3 months is a great idea for all of us personally, shouldn’t a business consider doing the same?
Investment volatility coping skills
As retirement plan advisors who lived and advised through the great recession, we’ve been heartened by the number of retirement plan participants we’ve seen stay committed to their investment strategies and their long-term goals as they “ride out” Covid-19-related market volatility. Bravo folks! This commendable investor behavior is likely linked to having a suitable investment strategy, based on a personal goal, time horizon and risk tolerance. If you aren’t sure that’s what you’ve got, reach out to your personal financial professional or retirement plan advisor for a review.
Working dollar cost averaging
Not everyone has been in a position to keep on contributing to their retirement plans throughout this pandemic. In instances where household income has not been seriously impeded, we have seen many retirement plan participants maintain their rate of contribution (or even increase it). Why? Because market volatility and lower investment values may have increased the purchasing power of their contributions, enabling them to purchase more units (or shares) of plan investments than was possible during the bull market. As famed investor Warren Buffet once said:
"Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down."
May the days and weeks ahead be a time of recovery and resilience for all of us – physically, emotionally and financially.