The economic ramifications of the COVID-19 coronavirus crisis are being felt around the world – and possibly within your own financial situation. Such a tumultuous time can be nerve-wracking for anyone relying on the financial plan they’ve put in place to help achieve the financial future they desire.
While we know it's likely temporary, the effect of the coronavirus on your financial planning can raise a lot of questions about what, if anything, you should do right now to get through this crisis – and the next one.
Separate your short-term and long-term goals
For soon-to-be retirees, Rachel Infante, CFP®, Principal and Financial Advisor at Birchwood, says that it's about maintaining perspective and knowing what you need in the short- and long-term. "It comes back to the goals in which you planned for and when those needs take place," she says. "Is it a short-term goal (like traveling or remodeling projects, for instance) or a long-term goal (retirement income needs) that we're planning for? If it's a long-term goal, a market correction may not have as severe of an impact as one would think, especially given the flexibility to adjust some of our short term goals.
"For some clients, it's just adjusting what they're doing this year," Rachel says – things like not traveling, putting off home improvement, or waiting to buy that new car. "The reality is they don't necessarily have to do them this year," she says.
Create an emergency fund
For times when income is uncertain, like the double-digit spike in unemployment since the start of the coronavirus outbreak, a safety net savings is a must.
"Typically what we recommend people have in an emergency fund is three to six months worth of expenses or income," Rachel says. "It can be different for different people." For example, people whose monthly expenses are low but their income is high should consider putting away an amount based on their income. Conversely, those whose expenses are higher (including a mortgage, car payments, debt, etc.) should plan based on their monthly expenses.
“For others who have fluctuating income or just a fear factor in general, having an extra padded savings may offer significant comfort for unpredictable times such as these," Rachel says. "So there’s not necessarily a one-size-fits-all when it comes to savings."
Focus on the big picture with a trusted planner
Market corrections like the coronavirus pandemic or the 2008 financial crisis are big, but typically short-term in nature. Part of long-term planning is accounting for adjustments like those while positioning your portfolio for success after the current crisis passes – something Rachel has learned a lot about since 2008.
"Fast forward 10, 12 years later, it's a very different situation," she says. "You have friends around you that are being laid off, and you have businesses that are closing. And, you know, a lot of us have families at home and things we're saving for.”
Rachel believes that "this will likely be a short term situation that is going to cause emotional distress, but most plans have built in some expectations of market volatility and most clients have some capacity to temporarily reduce expenses, so plans can be adjusted and remain solid."
There's no question that the market downturn that followed the onset of the coronavirus crisis hits hard. But Rachel says it's important to keep the big picture in focus – both the past and future. "Once we get through this, what should [you] be doing differently?" Rachel asks. "How much risk should you be taking, and when is an appropriate time to readjust that?"