In turbulent times, it is perfectly understandable to feel anxious about things you can’t control. That extends to managing money, especially if you’ve found yourself without a job or a sudden drop in income. The good news, however, is that there are ways in which you can take back control and manage your money when everything around you feels uncertain.
1. Go back to Start, do not pass Go
During uncertainty or any challenging life event, if can feel as though you’ve been thrown a curve ball and there’s no chance of ducking to miss it. Perhaps you’ve lost your income (or your and your partner’s income) or you’ve had to make significant changes to your lifestyle.
For a lot of us, it feels as though we’ve taken 10 steps back to Start, without passing Go and without collecting $200. The good news however is, just like Monopoly, this still gives us a chance to win by starting over.
If you have suffered job loss or experienced unexpected changes to your personal financial situation, start over by revisiting your original money motivations. Your ‘start’ is the most important thing you can do when you are trying to get back on track during uncertainty. This is because we often lose sight of what truly motivates us to save money. Reconnecting with our core money motivators helps us make better decisions.
2. Talk openly about money with your loved ones
If you are in a relationship, now is the most important time to talk about money. For a lot of people, this can make them feel uncomfortable. It can bring up a range of emotions and some people are even raised to think it’s impolite. The problem with that is money and how we manage it affects our everyday lives; it’s essential to discuss your attitudes to money with your partner, especially if you have shared financial commitments and joint goals.
We always say that happy couples talk about money. Sharing financial chores facilitates fairness and joint decision-making and opens conversations about needs and goals. This helps to maintain the balance and equality in a relationship.
We like to think that couples who plan together, stay together, which is why we suggest a number of ways in which you can get the ball rolling when it comes to talking about money as a couple.
3. Review your emergency fund
Have you saved enough in your emergency fund? The impacts of the coronavirus pandemic on job security have highlighted just how important it is to have a financial safety net.
Is it enough to cover your costs while you’re out of work? Better yet, will it last longer than you thought because of reduced living and travelling costs as a result of lockdowns and not travelling for work and pleasure? Either way, regularly review your emergency fund, make sure it’s realistic for your circumstances. If you’re in a couple or have a family, review what lifestyle changes need to be made to ensure your fund can cover your living expenses.
If you don’t yet have an emergency fund, start saving towards one now. None of us know what is around the corner and you will always be grateful for it. A general rule says 3–6 months’ salary is what you should aim for when it comes to your emergency fund.
4. Make sure you are protected
When things go wrong, you need to know you and your family are protected. Protection actually means a number of different things:
- An emergency fund – as we say above, it’s never been more important to have emergency savings set aside.
- Life insurance – it’s never a pleasant thought but you need to know your family is protected if the worst happens to you. If you are diagnosed with a critical illness or you die, a lump sum could help clear a mortgage and keep your family home for your loved ones.
- Income protection insurance – each year in the UK, one million people find themselves unable to work due to serious illness or injury (and that was before the coronavirus pandemic). Income protection insurance is designed to give you some cover if you can’t earn an income. Just keep in mind there are often waiting periods before income protection payments start, so look into it as soon as possible.
- An inheritance plan – while there is much emotion tied to the decision to provide an inheritance, you will want to ensure you manage it in the right way and that your wealth is protected when it is passed on to your beneficiaries.
- Government thresholds on your savings – ensure you fully understand any personal savings allowances and tax-free thresholds on your savings. Also, in addition to interest on cash savings accounts, ensure you are clear about what else is classed as savings income.
- Storing your most important financial information – we know it’s never easy to think about being prepared for the worst. However, they are eventualities for which we all need to prepare and it’s wise to have someone you trust to take care of financial matters on your behalf. Review your most important financial and legal information, store it in a secure place and share it with someone you trust. Doing so will protect you and your loved ones.
We have created a downloadable PDF below which helps you plan the key information you need to have available in the event of an emergency:
5. Review your net worth
The best way to understand your financial health is to know your net worth (the value of all your assets minus all your liabilities). If you track your net worth over time, it will show you whether you are making progress toward saving and paying off debt. If your assets exceed your liabilities, you have a positive net worth. Conversely, if your liabilities are greater than your assets, you have negative net worth.
How has the downturn impacted your net worth, and do you need to make adjustments to your spending to put you in a better position? Knowing your net worth, and regularly reviewing it, will help you to be mindful of your spending and put you in control of making sound financial decisions. Your financial adviser should be able to give you an overview of your net worth.
6. Play the long game
Global markets continue to suffer as a result of the coronavirus pandemic and investors continue to be nervous. However, history shows that markets always bounce back. It’s just the length of time and shape of the recovery that we can’t be absolutely sure about.
How long a bear market typically lasts is best illustrated as below:
For investors who stay focused on their long-term investing goals, volatile markets can be a good entry point. As our colleagues at Brewin Dolphin explain, sell-offs can provide an opportunity for those who are willing to hold their nerve and buy into the market.
Before acting, however, always revisit your reasons for investing. Review your personal financial goals and understand your tolerance for risk. If you don’t need the money now, and you feel financially stable enough to stay in the market and perhaps increase your monthly investments, that could be your best decision.
This is why knowing your net worth matters. If you are in strong position, have protected yourself and have a good emergency fund, you may be able to invest even further while we are in a bear market. Remember, investing is a long game.
Predicting the future (as much as possible)
No one can ever truly predict the future; however, when it comes to planning your financial future it is possible to come up with multiple scenarios based on your current situation. That’s the power of lifestyle financial planning and in particular cashflow modelling.
Using specialist software, it’s possible to analyse your assets, inflows and expenditure to provide you with a comprehensive yet easy-to-understand analysis of your existing financial situation. It is then possible to test the potential impact of different scenarios on your lifelong cashflow forecast.
Cashflow modelling deals in reality, using the data you provide, and the robust scenarios that are generated help you to manage risk to maintain the lifestyle you want while navigating life-changing events.
Want to know more? Download our free Lifestyle Financial Planning guide.
