Put Yourself in the Best Situation
No matter how serious the coronavirus really is, the economic impact of this pandemic has been unprecedented. Many businesses have been unable to operate for over a month, and it has led to an incredible amount of job loss. You might be wondering how you’ll be able to survive the current economic downturn, and it could cause you to make a decision based on emotions (which are no doubt running high). There is a way out of this situation, but it requires a strategy.
Here are some financial moves you can make that will increase your chances of coming out ahead when things pick back up.
Don’t Do Anything Out of Fear
Just because you can liquidate your retirement savings without paying a 10% penalty, doesn’t mean you should. While the market went down substantially, it has recovered quite a bit in the last few weeks. It has come back from where it was before and making decisions based on emotions can put you at a significant disadvantage. You can take money out of your retirement without paying a penalty, but you should use caution because you could miss out on future growth opportunities when the market recovers.
Historically Low-Interest Rates Could Give You the Opportunity to Refinance
When it comes to refinancing, you should start with your mortgage. As a rule of thumb, you should go for a rate decrease of 1% or more. And you might be able to decrease your payment period. That way, you can pay off more of your house at a lower interest rate. You should also look into consolidating your auto and student loans, so you can lock them in at a lower interest rate. Refinancing is not a one-size-fits-all approach, but it will give you the opportunity to pay more of the debt without paying as much interest.
Stop Paying More of Your Debts
When you’re faced with this type of situation, cash is king! You want to increase what you have in your emergency fund, and you need to have good cash flow. You only want to pay the minimum and nothing more, because you don’t want to pay extra on your house or car until things get back to normal. Just remember that it’s only a temporary strategy until stability and certainty returns.
Reduce or Stop Contributions to Your 401(k) and Other Savings
If you don’t have enough money to pay certain expenses and you’re not sure your job will be there when this crisis is over, you can reduce or stop contributions to your 401(k) or any other savings accounts. But you only want to do it when you have some uncertainty and instability about your finances. So, you should only do it as a last resort. While things look bad now, it’s only temporary. You should try not to go below the match if you can, and you need to turn it back on as soon as possible.
No matter how bad things may seem, it’s important to “stay the course.” And use this situation to take advantage of “dollar-cost averaging,” because it can give you an opportunity to buy things on sale. Many investors say that you should “be greedy when others are fearful” because those prices will increase when the recovery eventually happens, and you could see a significant appreciation in your investment accounts.
Unprecedented times call for unprecedented measures. Do you need to sell your house and rent for a while? Do you need to downsize your apartment? And don’t forget to sell any junk that you don’t use anymore. Even if you have to look at your monthly subscriptions to trim the proverbial fat, you should do what you can to survive this crisis. Things will get better, but you want to get there in the best way possible.
If you want more advice about what you can do to survive the current financial crisis, be sure to get in touch with Trevor and Shakiba Capital!