2020 has been a year like no other with Covid-19 having derailed all of our plans and expectations. Unfortunately, the United States is officially in a recession, ending the longest economic expansion in history. More than 40 million Americans have filed for unemployment since the pandemic began and uncertainty seems higher than ever. The word recession often triggers negative thoughts, feelings, and fear of the unknown. The question is, when do we get back to how life used to be? Below are several ways to help navigate through a recession and these uncertain times.
- Building your emergency reserve.
- What is your “sleep at night money”, what is your comfortable minimum cash balance to have at all times for large expenses, emergencies, etc.? If possible, adding additional funds to your reserves will help ensure that you will continue to pay all of your necessities. Recommend using an online high yield saving such as “Marcus by Goldman Sachs” or “American Express” to earn the highest interest possible.
- Paying down debts if possible
- Priority is to eliminate existing debt such as credit cards which may involve high rates of interest. Auto loans and mortgages can be refinanced at lower interest rates due to the Federal Reserve cutting rates. Federal student loans offer deferred payments interest free to help for several months.
- Think with the end in mind
- This expression by Franklin Covey means to think with a clear vision and destination, then proactively incorporate a plan to achieve success. The path forward may be uncertain, but your long-term vision should never change. Making drastic short-term changes will severely impact long term financial security.
- Identify your risk tolerance and stay the course
- Understanding your risk tolerance is a major factor when building a financial plan. At Lighthouse, we believe that allocation should focus around a spending plan. Someone who may depend on their portfolio with a short-term mindset would often focus on CD’s, money markets, and bonds. An investor focused on needing income from their portfolio several years down the road would rely on equities to maximize their potential return. Although thinks can be shaky in the current markets, stick to your plan and identify your objective.
- Identify your budget and cash flow
- What makes you happy, what is essential? Only you know that answer. It is helpful to take a look at current income and expenses to see where you stand. Identify possible ways to cut back to make sure you are living within your means.
- Focus on your health
- This is the most important of this list. Having strong mental & physical health during tough times is what will help you achieve success. Whether it’s going for a walk, going for a drive, playing a video game, etc., do what makes you feel good. Options may be limited, but take advantage of what makes you thrive. Take advantage of spending time with your family and friends. They are your most invaluable assets.
There is no specific timetable as to when a recession will end, but we can at least navigate these unprecedented waters a little easier together. Think of all you have, especially your family and friends. We often look back in life wondering how we ever got through various life challenges. Covid 19 may be disruptive, but in the end this too shall pass. In the future we will look back and learn from this experience together and be better for it.