This post was originally written for and published on Forbes
These days, it seems everyone has one big question on their minds:
What should I be doing with my money right now?
The economy is at a standstill, unemployment claims are soaring, the market continues to feel shaky after its recent fall from the peak, events from now through the end of the year are postponed or canceled, and nothing feels certain right now.
That’s a bleak enough picture on its own — but add on a sense that maybe your personal finances aren’t as stable as you thought they were before the beginning of 2020, you could be feeling particularly uneasy and concerned.
So let’s take a look at what you can do to build financial stability now.
Refer Back to Your Financial Plan
When my financial planning clients reach out to ask if there’s anything they need to do differently because of current events, my answer is usually something along the lines of, “in general, no, I don’t think that you need to make any changes in response to what’s going on.”
This applies for people who are in a solid financial position with a financial plan that uses conservative assumptions. Each of us should know that we all face tough times along our journey from where we are today, to where we want to be tomorrow (even if we didn’t know exactly when those tough times pop up or what causes them).
Making the conservative assumptions builds in the buffer room needed to withstand downturns or turbulent events like what we’re experiencing right now.
So when clients reach out to ask, “should we do something different?” my answer is (usually) “no,” because in some sense we’ve already anticipated a negative event like this, and accounted for it in the plan.
Don’t Have a Plan? It’s Not Too Late to Build Your Own
All of this is well and good if you have a financial plan to stick to. But what if you didn’t have one before this started?
It’s important to acknowledge the reality of not having a plan… but there’s not any need for judgment, blame, or guilt here. The past is the past; there’s no use ruminating over “woulda, coulda, shoulda.”
While yesterday was indeed the best time to start planning, the second-best time is now — so seek to go on offense, today.
An extremely easy and quick way to get organized and build an action plan is to start with a SWOT analysis and identify your strengths, weaknesses, opportunities and threats.
This is usually done in a business context, but you can easily apply it to your finances to help you see what needs to be in your plan and what action steps to take next.
For example, our strengths might include a strong cash flow from your job — and therefore, your opportunity is to leverage that by increasing what you contribute to savings and investments, both to build up cash reserves and take advantage of the lower cost of buying equities right now.
On the flipside, your weaknesses might be that you don’t have another source of income if you were to lose your job or no emergency fund to fall back on — therefore the threat is that you might struggle to pay bills and end up sinking into debt should you become unemployed.
Maybe actions to take here include buffing up your resume now before a job loss occurs; reaching out to potential contacts and networking connections so you’re in the loop before you need to ask for referrals to open positions; and paring down your spending immediately so you can stretch your savings further if you lost your income.
Focus on What You Can Control
Ultimately, the most important thing you can do is stay committed to operating in the realm of what you can control. What you can directly influence may include:
- Reducing expenses and cutting costs
- Putting large purchases or commitments on hold if you can
- Avoiding any unnecessary risks (financial or otherwise)
- Continuing to make planned contributions to savings
- Considering increasing what you contribute to investment accounts, depending on the specifics of your situation
The most powerful thing you can do on this list is slash your spending immediately. This is also the most unpopular option; most people feel like this is a punishment and the last thing anyone wants right now is more bad news.
But this is also something that (a) is very much within your control and (b) can make an immediate, major impact on your overall financial life.
Don’t make excuses or procrastinate on this action step, especially if you’re seeking more stability right now.
Cut Your Costs Now (and Don’t Make Excuses For Not Doing It!)
If you feel concerned or anxious at all about what’s going on in the wider world, or just want to remain proactive, examine what you spend. Are any places in your budget that you feel you could at least temporarily cut back on?
“Temporary” is a key word here. You don’t have to commit to living as frugally as possible until the end of time just because you cut down on what you spend right now.
This is an extraordinary circumstance, and controlling your cash flow is the best tool most of us have for dealing with financial instability and uncertainty.
The bottom line is that exploring the option to reduce some expenses at least until we all have more clarity on how we’ll come out of this makes sense if it would make you feel more secure and in control of the situation.
Build Up Your Cash Savings (Even If You’re Not Afraid of a Job Loss)
Once you cut down on some discretionary spending in the short term, make sure you actually move any cash flow you free up to savings. Here’s a potential order of operations for organizing the money you save:
1. Make sure you have a full emergency reserve account.
If you don’t have one at all, set a goal to amass $1,000 in cash. From there, look to save 3 to 6 months’ worth of expenses as a cash reserve.
2. Consider adding to cash reserves.
Even if you have a “full” emergency fund, a little extra cash on hand can help provide some peace of mind in an uncertain time.
Once we get to a point where things feel less shaky and you feel like you have more clarity on what the future is likely to hold for you, you can reassess your cash needs. With any extra, you could fund short-term goals faster or add cash to investments.
3. Add money to your investment portfolio.
This is a good option for anyone who feels relatively stable right now, is comfortable with their job status, and already has sufficient cash on hand to feel okay with their financial position.
If you’re checking all these boxes and you’re a long-term investor who can ride out some market volatility, putting more cash into the market right now could be a good long-term play.
This isn’t right for everyone, and it’s smart to consult with your financial planner first before you make any big money moves. They can help you vet the situation, evaluate any blind spots, and provide specific, personalized advice that applies directly to your circumstances.
Want more financial advice you can actually use? Check out Beyond Your Hammock, a fee-only financial planning firm that specializes in helping 30- and 40-somethings get clarity and start building wealth.