Question: All the uncertainty surrounding the Coronavirus has me wondering how effective long-term planning can be during times like these. What do you think?
Answer: “My life has been filled with terrible misfortune; most of which never happened.”
So said French philosopher Michel de Montaigne over 500 years ago…which just goes to show you worry is bi-lingual, transcontinental and never goes out of style.
For many of us, our automatic response to worry and crisis is to freeze. Not having a secure path clearly and directly in front of us, we stop…waiting for clarity and security to emerge, as if by magic, out of our delay.
A brief delay in a moment of panic, emergency or crisis is fine. Inevitable really. You need a moment (or a day, or a week….) to evaluate your new circumstances. What we must not do is give in to any ostrich-like inclination to bury our head in the sand and simply not look at the difficulties ahead.
Delay or denial will not make our problems (real or imagined) go away. Dealing with them gives us the best opportunity to survive and eventually thrive.
In the case of financial matters, delay due to uncertainty may lead to disaster. When you are insecure about any part of your future, the thing to do is not delay financial responsibility, but to deploy it.
The trick is in knowing which parts of your financially responsible plan you should prioritize. It does make a difference.
1. Do not delay protection. If your financial evaluation shows that death, disability, or a protracted illness would sink your financial ship, don’t wait for the perfect time to address those issues. Work with a licensed professional to put in place legal, financial, and insurance moats around your castle. Calamity doesn’t take a holiday just because there is a crisis today and your future is looking hazy.
2. Do not delay dumb-debt reduction. If you’re worried about your paycheck stopping for a time, get your dumb-debt in the best shape possible. Eliminated would be nice. By dumb-debt I mean the debt you now have for buying something you didn’t really need that is now worth less – a lot less – than what you paid for it. Your home mortgage is probably not dumb-debt. Your credit card balance for last year’s wardrobe probably is. You’ll want as much of the dumb-debt out of your life as possible if your job comes to an end. That may mean selling some things to pay off your dumb-debt.
3. Do not delay significant saving. This is the first cousin of #2. If you don’t have any dumb-debt – congratulations! Use the funds you would have applied to debt reduction to significant savings. In “normal” times, I recommend 15% of annual income or more going to savings. If you have concerns that your source of income may be temporarily cut off, you’ll want to make sure your pool of reserves is as deep as possible. Save aggressively, starting now.
4. Do postpone optional purchases. If you are paying down debt and saving, you’ll just be tearing down your work if you make unnecessary purchases. Of course, you’re going to have to spend money – that’s not the issue. The issue is making sure that you are protected and liquid going into any time of possible crisis.
The Coronavirus crisis is real. Nevertheless, we may worry about a lot of crisis fallout that never actually happens. There’s just no way to predict that future.
So, don’t let your worry devolve into delaying your deployment of commonsense financial decisions that need to be made and acted upon now.
That would be another real crisis.
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