I think the pandemic has caused many of us to press the reset button on our lives. It seems the country is starting to reevaluate what’s important in life. It’s leading to questions like “where do I want to spend my time” and “what do I want to do.”
I know the pandemic has caused hardships financially and professionally for people close to me. For some, this means a loss of a job or a reduction in pay. In other situations, the outcomes could be more severe (eviction, food insecurity, etc.). I believe there is no better time than now to get your financial house in order.
The pandemic is like covering the elements of your financial plan with sand and then pouring the sand through a sieve. Prior to March, you couldn’t see if your plan had gaps or not, but then COVID-19 hit and your financial preparedness was put to the test. For those who lost a job, the plan (or lack thereof) was immediately stress tested.
All of the sudden, having an emergency cash reserve was more important than ever. Of course, this is just one component of a financial plan. To achieve more of what we want out of life, we need to start viewing money as a tool to obtain the things we value (i.e., freedom, peace of mind, contentment).The elements of a comprehensive financial plan include cash flow management, tax planning, risk management, retirement planning, estate planning, investment planning, and philanthropic planning. While textbooks are written on each topic, the purpose of this article is to focus on the areas that I believe will be critically important as we continue through this pandemic and future financial crises.
Cash Flow Management
It has been written many times, but can’t be stressed enough. Everyone should have an emergency cash reserve of three to six months’ worth of living expenses on hand to cover unexpected events or expenditures. In addition, any known expenses (vacations, home renovations, car purchases, etc.) in the next 12 months need to be kept in cash as well.
In the midst of the pandemic, maintaining an emergency cash reserve can be challenging if you’ve lost a job or had your salary reduced. However, make this goal a priority. Use budgeting tools, such as the one provided by Smart About Money to begin tracking expenses and find areas where you can begin to cut back.
Risk Management
It can be tempting to cut or forgo insurance to make ends meet in tough times. However, being underinsured or uninsured can make tough times worse. Depending on the phase of life you’re in, you could be exposed to different types of risk.
For some, it is providing for a spouse in the event of a premature death. The average amount of life insurance needed is 10X your salary, but a more sophisticated analysis should be performed.
For others, it could be having a plan to cover the cost of a long-term care event (see my article on long-term care planning). Make sure you are working with your financial advisor, or a licensed insurance agent, to evaluate and plan around the risks to which you are exposed.
Estate Planning
You may be asking yourself why estate planning is so important right now. I can assure you that it is. I have had two clients pass away since March and know that planning a funeral through the pandemic is stressful even with the proper documents in place.
Meet with an attorney to determine the types of documents that make sense based on your situation. An attorney will typically provide you with a package of estate documents that includes a will, financial power of attorney, medical power of attorney, and living will. It also important to ensure that you have named the proper people to help make financial and medical decisions for you. In light of the pandemic, I think you need to pay close attention to where your executor or power of attorney is located.
I encourage you to take this extra time at home to ensure that you feel comfortable with these areas of your plan. Please contact your financial advisor or schedule a complimentary consultation with one of our team members at Syverson Strege at 515-225-6000 if you have any questions.
