Several major employers in the Des Moines area have recently announced significant pay cuts and other cost saving measures as the economic effects of the Coronavirus pandemic continue to spread. As businesses work to keep afloat, what are some steps that families can take to make sure they are prepared and able to get through any financial obstacles that might be coming? It is never too late to make some changes and take action to prepare yourself for any issues that might arise in the future.
How Well is Your Emergency Fund Stocked?
Having a significant emergency fund is your first line of defense for any unexpected financial shortfalls. Whether it’s a loss of income like many people are experiencing now, or a big expense that comes up, it’s important to have money set aside. The general rule-of-thumb is to have three to six months of expenses available, but this can vary a lot by personal situation. Does your family have dual incomes from stable jobs? Maybe you don’t need as much. Does your income result from a business that’s more volatile from month-to-month? You probably need to keep more money freely available. Many other factors, like number of dependents, come in to play as well, but no matter what amount you decide on the funds need to stay liquid and easily accessible when needed. I usually recommend keeping the emergency fund in a high yield savings account so you can earn some amount of interest on it. Sometimes it can be helpful to use an online bank that’s separate from your normal bank or credit union because then the money is a little more out of sight and not as tempting to use for something else.
Evaluate Current Spending
If you don’t have at least a general idea of where all your money goes, now is a great time to start. Even if you aren’t a strict budgeter it’s good to have some idea of the categories your money goes to, and how much they are allocated. There are several easy to use apps available that can help track this in a more automated fashion after linking your accounts (‘You Need A Budget’, Mint, etc). Keeping an eye on spending is always important to make sure it’s in line with your goals, but if you are facing an income reduction it’s even more critical. Any discretionary spending should be evaluated to see if it’s still affordable, and how things can be reduced or eliminated in any way. Small cuts today might help avoid bigger painful cuts in the future. Whether you are impacted yet or not, this could be a good time to think more about your spending if haven’t before. Does the way you spend money align with your goals and happiness? Even if you haven’t been financially impacted yet, this could still be a good time to evaluate your situation and adjust things for the better.
What is Your Current Savings Situation?
I never usually want to advocate for reducing savings rate, but our current situation could be a time where it’s okay for some people to keep more money available and not tied up in retirement plans. Unless there are extraordinary circumstances it usually makes sense to keep contributing enough to employer plans to at least get any matching funds available, but if your emergency fund isn’t as well stocked as it could be then it’s possible you might consider reducing any additional contributions. It can be very tempting to see the big market drops as a good buying opportunity, but making sure your entire financial situation is on solid ground is where the focus needs to be first.
I have included a more detailed PDF checklist below of other things to consider if you're facing a pay cut or job loss. If you have been impacted by some form of income reduction, or are just worried about the uncertainty we have going forward, reach out to me for a complimentary meeting, and I will do whatever I can to help.
PDF Download: What Issues Should I Consider If I Lose My Job?