Something about volatility, in life or in the markets, has a paralyzing affect on most individuals. What’s ironic is that this is generally the most valuable time to make moves and adjustments, once again, whether it’s in life or in the markets. Given so much uncertainty and volatility in our economy right now, while a lot of us are working from home I might add, this is the perfect time to review your portfolio and possibly make some of those adjustments. The things you do now during a time of volatility can set you up to withstand the next instance of economic duress. Ask yourself these questions to see if there are adjustments you need to make.
- Do I have a budget?
No financial plan can be completed unless you know how much money is coming, and how much is going out. If what’s coming in is greater than 85% of what’s going out, it might be time to pull out some statements and see where you can possibly make some changes. Now’s a great time to review things like your home and auto insurance if you haven’t done so in 2+ years. While we’re all going out far less than we are used to, take a moment to see how that decline in entertainment spending has affected your bank account. Now that you’re spending far more time at home, which streaming service is still not getting watched? How much debt do I have?
2. How much debt do I have?
Now that we’re finding a few extra bucks in our budget, can we apply it towards debt? If you have credit card debt, that needs to be priority 1 and 2. Always make sure to carry a $0 balance. Or maybe you have some nagging student loans that are a drain on your bank account. Can you find an extra $100/month to pay those off far more quickly? Living a lifestyle others dream about starts with managing and getting rid of debt. Use the old debt snowball approach. Pay off your smallest debt first. Apply that monthly payment then to your next highest debt. And so on and so on until all debt is paid off. The literal and figurative burden that will be lifted will be enormous.
3. Do I have an emergency fund?
After getting that debt paid off or under control, make sure you’re sitting on at least six months worth of cash. That budget we started with should give you a good idea what your monthly expenses are. If you’ve got six months of cash in an emergency fund, and you weren’t so lucky in this economic downturn, that cash is an invaluable lifeboat right now. If more than six months’ worth of cash in that fund makes you feel more comfortable, then by all means beef it up. Whatever number helps you go to sleep at night knowing that if the wheels come off of my investments in the morning I’ve got time to react and take care of things.
4. Am I properly insured?
One opportunity this coronavirus has allowed us another reminder that life is precious, and things happen that are out of our control. There’s no one size fits all approach for insurance, but it is an integral part of any financial plan. If you haven’t reviewed your coverage recently, now’s a great time to do so.
5. Do I have an investment strategy?
What am I saving? What am I investing? Is it at least 10% of my income? Can I increase that at all? Slight adjustments to your savings rate now will pay you back in spades 20 years down the road. The best friend that an investment can have is time. Time in the market to generate compounding returns is a far more effective approach to building wealth than trying to time the market.
6. Could I use some help?
If you’re having trouble answering any of the above questions, please seek out some advice. A tweak here and a modification there can do wonders for a portfolio. If you are just getting started, or don’t know where to start, the value of ongoing financial planning will manifest itself in far great efficiency and peace of mind.