Time to Get Busy


CarolinaFireJournal - Bill Carter
Bill Carter
07/07/2021 -

We are finally coming out of our Covid-19 prisons to once again join the human race.

I don’t know about you, but this has been the most disruptive time of my life, even including the time my three children were all under the age of five.

At the beginning of the pandemic, I set out some actions you could take to better prepare and adjust your finances. It’s now half-time on 2021 and it’s time for you to see if that budget needs adjusting. However, having a plan does no good unless you are willing to follow and work on your plan.

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The pandemic has transformed our way of living, and while this fast-moving virus has caused major societal disruptions, it has resulted in personal changes as well. Many people have taken a deeper look at their finances and have reevaluated their financial priorities.

“Many people went from planning for the future to planning for right now, as the pandemic brought on so many unexpected challenges,” says Andrea Williams, a wealth management advisor with Northwestern Mutual. According to a Northwestern Mutual consumer survey conducted in April, Williams notes, 64 percent of respondents said COVID-19 had a significant impact on their daily lives and 68 percent shared they were concerned about the U.S. economy.

Obviously, these changes may leave you feeling stressed, but several financial advisors offered up some tips to help weather this year — and the next — regardless of your financial situation.

Learn to Adapt

According to Williams, the past few months have revealed the importance of being able to adapt to life’s unexpected challenges. “While the best way to adapt during this time might look different for each person, anyone who’s trying to make this shift and figure out what’s next for their finances should consider certain questions.”

She believes these are four questions to start with:

  • What options do I have for quickly accessing cash?
  • How can I protect my income during these uncertain times?
  • What types of loans and financing am I eligible for?
  • Looking ahead, how can I financially prepare for what’s next?

Don’t Make Emotionally Driven Decisions

The ability to make sound financial decisions requires both knowledge and thoughtful consideration. “However, people often make decisions that are dictated heavily by emotions, rather than finding the right balance between rational and emotional thought,” Williams says. If you’re stressing over a financial decision or the current state of your investments, she has this simple advice. “Step away and take a deep breath — I’ve seen how this can help you make more calculated choices and avoid reactionary decisions.”

If you’re thinking about yanking your money out of the market, it may not be wise to pull out just because of market volatility or a temporary setback. “History has shown that the markets and investments have typically bounced back over time,” Williams explains. “Of course, past performance is not a predictor of future success, but it is information that should be taken into account.”

Josh Simpson, a financial adviser with Lake Advisory Group in Lady Lake, Florida, says he’s seen a dramatic shift since the beginning of the year. “Prior to the pandemic, and mostly because we were experiencing the longest bull market in history, people were less concerned with risk and finding ways to limit the amount that they took on as they got older or even while they were still working.”

However, across all age groups, Simpson says the focus is now on creating safe, consistent income in retirement that isn’t solely dependent on the stock market. “The number of people that I have spoken with who want to move money into CDs and bonds has increased dramatically since February of this year.” But those options can also be problematic. “With rates so low, they are limited in the safe options that exist and can keep up with inflation.”

And yet, Simpson notes that there are investment options that can remove the market risk from the equation. “That is where working with a financial advisor who is a fiduciary and is looking out for your best interest comes in handy.”

Focus on Your Budget

Financial uncertainty increases the need to know where your money is going — and making changes when you can. Simpson says this need isn’t as great for retirees because they’re on a fixed income and understand the importance of budgeting. “However, the pandemic has awakened a lot of people to the realization that they may not be getting a paycheck next month because something out of their control happens.”

And now more than ever, he recommends learning how to live within, or below your means and saving as much money as you can. Even if your job appears to be relatively safe, it might not be untouchable. “You might not get laid off, but it is possible to get hours cut, salary reduced or some other type of reduced income,” warns Brandon Renfro, a financial advisor and assistant professor of finance at East Texas Baptist University in Marshall, Texas. “Including some margin of safety in your budget lets you react more subtly.” Using a free budget spreadsheet, you might be surprised to see where your money is going. Here is a link to it and it has great budgeting tips: https://www.apartmenttherapy.com/free-budget-spreadsheet-36758107

Check In With Your Creditors

If your income has been reduced or eliminated and you’re on unemployment or living on your savings, prioritize what’s most important. According to Katie Ross, education and development manager at American Consumer Credit Counseling, the necessities are groceries, rent/mortgage payments, and medicine. “Credit card debt repayment may have to be put on the back burner until consumers who are out of work or have had their hours cut start making more money again,” she says.

However, if you can’t afford to make your minimum payments every month, she recommends calling your creditors immediately to work out a payment plan. “Creditors might temporarily lower interest rates or minimum payments as a form of relief.”

Storm-Proof Your Credit

Did you know that your credit score can be negatively impacted even if you’re making timely payments? Ross says that some credit card companies are reducing consumer’s credit limits. And once that happens, your credit utilization ratio takes a hit. For example, if you have a $5,000 limit, and you’ve charged $2,000, your credit utilization ratio is 40 percent. However, if the credit company lowers your credit limit to $3,000, you’re utilizing two-thirds of your credit, and this will lower your credit score.

She recommends the following checklist to stormproof your credit as much as possible:

  • At least once a month, review all credit card, credit line and consumer loan statements.
  • Ask about credit limits and if your lender or credit card issuer plans to lower your limits.
  • Use any extra cash left over each month (even small amounts) to pay down the largest balance or the debt with the highest interest.
  • Obtain your credit report (for free) and use free services to monitor your credit scores each month.

Continue Saving for Retirement

If you’re new to the workforce, saving for retirement might not be a priority, but according to our financial advisors, it should be. “Quite a few employers have cut their matching contributions to retirement plans.” And to make sure that you don’t derail your retirement savings, Renfro advises factoring the missed match in your budget, if you’re able to do so. “For example, if you had a five percent match but your employer cut it, that means you need to save an additional five percent to keep from falling behind.”

Don’t Forget About Life Insurance

COVID-19 has been a grim reminder to obtain life insurance. “Our study revealed that the pandemic has prompted Americans to reconsider their views of life insurance’s role as part of a holistic financial plan, with nearly four in 10 (or 37 percent) saying they now see an increased importance for owning it,” says Chantel Bonneau, a San Diego-based wealth management advisor for Northwestern Mutual.” In fact, she says that many advisers have observed an increase in discussions with clients regarding life and disability insurance. If you are in severe need of cash, check to see if your insurance policy has a “whole life Policy.” If so, you may be able to borrow or even cash in that policy. But don’t do it unless it’s absolutely necessary.

Consider Refinancing Your Mortgage

Interest rates are still low, and depending on your current rate, you may benefit from refinancing your mortgage. “While it can take time to receive approval, refinancing can help lower your monthly payments for the long term,” Williams explains. However, be sure to weigh all of the pros and cons of refinancing, since this might not be the best option if you’re closing to paying off the mortgage, or if you don’t qualify for a really good rate.

If you lost your job and are in danger of foreclosure on your home, you might consider selling as most real estate markets are very hot. That way your credit can remain intact, and you do not lose your equity in the house. And, begin an ongoing dialogue with your loan officer so they can remain aware of your efforts to work with them during this period. Banks and credit unions want money, not your property, so they are working hard to not lose money on your deal.

There is nothing new here to see. There is, however, much that’s needed to be done to make sure you and your family are still on solid ground moving forward. It’s time to get busy!

Bill Carter is Director of Fire/EMS Business Development for Civic Federal Credit Union in Raleigh. He has been in the financial services industry for 41 years and serves on the Advisory Board of the North Carolina Fallen Firefighters Foundation. You can send your questions to him at: [email protected].ASK MR. BILLA column devoted to answering your questions on consumer, mortgage, small business and non-profit investments and lending programs to help you navigate the new financial landscape. Send your questions to [email protected].
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