ASK MR. BILL: Well I Certainly Didn’t See THAT Coming!

ASK MR. BILL

A 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 bill.carter@civicfcu.org.

Thanks for stopping by to read our new column. The intent of this column is to answer YOUR questions regarding financial challenges that you, your family, your business or your non-profit organization are currently facing or are expecting to face soon. But, in order to do so, you will have to send me an email with your topic or situation. My hope is for this column to become a conversation between us, as we face unprecedented financial challenges now, and in the months and years ahead, together.

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The world has drastically changed in the last few months. Our normal life was turned upside-down, and we’re all just trying to navigate our way around all the uncertainty at this time. When uncertainty becomes a part of your everyday life, it can cloud your decision-making process. This is certainly the case with your money. I made financial mistakes that I should have avoided during phase one of the pandemic. At the beginning of the pandemic, I stopped looking at my budget almost completely. Even as someone with expertise in the personal finance space, I felt overwhelmed by trying to make so many changes to roll with the current times. So, I didn’t make any changes. And for about two weeks I didn’t touch my budget, at all.

Fear does that. It causes you to temporarily freeze in your tracks and lose focus on your long-term financial goals. Your priority shifts to short-term survival, which is not necessarily a bad thing. But, when that shift causes you to make irrational decisions with your money, that’s when we need to reel it back in. So, it’s important to know what financial mistakes to avoid during the pandemic.

With the unemployment rates now at depression era levels and the stock market plummeting, it’s easy to get caught up in the uncertainty of it all. It’s especially true when we don’t understand what we should or should not be doing with our money right now.

Here Are 11 Financial Mistakes to Avoid During the Pandemic:

Money Mistake #1: Constantly Monitoring Your Investments

Investing is a long game. Checking in on your portfolio or 401k account every week or worse, every day, will cause you to make rash decisions out of fear. It’s a financial mistake to avoid making right now. It can cause you to lose a lot of money. Instead, ignore your portfolio for a while, check on them every quarter or twice a year. And the worst thing is to sell your investments when the prices drop because you think you’re cutting your losses. On the contrary, you’re realizing your losses.

If you stick it out and ignore the fluctuations of the stock market, no matter how high or low they get, you’ll inevitably see financial gains in the long run.

Money Mistake #2: You’ve Stopped Saving Money

When we’re in a financial crisis, it’s easy to think about reducing our expenses rather than increasing our savings. But, increasing our savings rate will help us weather the financial storm when it comes our way. The more we save now, the more financially stable we will be, which can ease our stress during this financial uncertainty.

It’s easy to use this time of stress to impulse spend on things we think will make us feel better. This is a big financial mistake that we should avoid. Impulse spending builds unhealthy habits that take years to overcome.

Instead, take this time to strategize ways to save more money each month. The more you save, the more financially stable you’ll be. This is where analyzing your budget again now can help you weed out unnecessary expenses and possibly find more to save each month.

Money Mistake #3: Paying Your Federal Loans When They’re Paused

One thing financial planners are recommending people NOT do right now is pay anything towards their federal loans that are “paused.”

Instead, take that money — your normal student loan payment — and use it to pay down other debt like credit cards or a car loan, or place it in savings for future needs.

Paying your federal loans right now is essentially wasting free money. It’s unheard of to get this break on your loans, so use it wisely! I agree, if you’re able to defer payment, especially with interest charges at a stop right now, it’s a good idea to put all your efforts into paying off other debt that is currently still active, and continuing to make timely payments on credit accounts to protect your credit rating. Be sure to confirm that interest in your federal debt has been frozen.

Money Mistake #4: Relying on Financial Assistance Income Only

Do not rely on non-guaranteed sources of income and even more so, on your government for financial relief. During uncertain financial times, you might be able to make ends meet with unemployment benefits or other government aid. During a world crisis like this global pandemic, avoid relying heavily on just one source of program. While this is helpful, you should not count on the money and act as if it is certain. In other words, don’t keep spending like you have been.

There is nothing guaranteed and if you do get some financial assistance, it may not last during these entire difficult financial times. You are better served by cutting back on your expenses as much as you can now and then using any assistance to shore up your cash reserves.

I’d like to add that this is also a perfect time to look at ways to have multiple income sources. Having multiple income streams increases your income stability and ensures that you are not heavily relying on one source of income, which can put you at greater risk of financial struggle if you lose that income. However, with almost 20 percent of the work force laid off, you will have to get creative.

Money Mistake #5: Adding More Debt

This is a huge money mistake that you should avoid at all costs, whether we’re in a pandemic or not. You should be doing everything in your power to reduce your debt right now. With uncertain times, having less that you owe will keep you more financially stable and at less risk. Experts would recommend you not taking on new monthly payments. Automotive manufacturers are offering incentives, looking to get you behind the wheel of a brand-new car. Job stability is up in the air and these companies are struggling. They are doing whatever they can to tempt you to make a major purchase. Instead, this is a time when you want to keep your expenses low and maintain your existing vehicle. Cash is King.

If you can qualify to refinance your home mortgage in order to lower your rate and payment and create increased cash flow, it may be worth seeking out. Make sure you will be able to recoup your closing costs through interest savings during the time you will be remaining in your home.

Finally, do not take on any new debt unless you can pay it off 100 percent in 30 days.

Money Mistake #6: Using Your Emergency Savings Funds to Invest

With many stocks trading much lower than they were 90 days ago, it’s very tempting to use your emergency funds to invest and hopefully “catch up” on your investment returns. Don’t do it. Make sure you continue to contribute and build up your emergency savings fund, so you can weather the economic impact of a possible job lay-off or a pay cut should they occur.

Money Mistake #7: Focusing on What You Can’t Control

During uncertain financial times, it is too easy to focus on the things you can’t control. This is just us reacting to stress, of course, and it’s natural to spend time and energy worrying about external forces, whether it’s losing a job, a pandemic, or some other aspect of your life.

During uncertain times, you must find the wherewithal to spend your energy on things you can control.

So, focus your energy on areas where you can make an impact. Redo your budget, start a side job or create a strategy to build up your emergency fund.

The key here is to take some form of positive action rather than to worry about things that are out of your control. This mental process of reframing things will ultimately help you stress less and act when it matters most.

Avoid this money mistake, especially during a pandemic, and instead focus on shifting your mindset. Your mindset is what can make or break your situation. Use it to help you grow and move forward, even during a pandemic.

Remember: All that you can control are your efforts and your attitude.

Money Mistake #8: You Stop Budgeting

Don’t throw your budget out the window. During a pandemic or financial emergency, your budget is your best friend. Use it as a guide to see what your real priorities are versus what are extra’s where you might be able to cut back.

Focus on your immediate needs and put your wants and less important needs on the back burner.

Your budget is one of the most important tools you have right now. It is powerful in helping you assess your current financial situation and helping you plan out your spending and growth for the future.

I should have taken this advice during the first two weeks when I fell off the wagon. When I got back to budgeting, I realized how freeing it felt and how much it helped with reducing my stress.

So, keep budgeting. It will not only help you financially, but it helps keep your stress levels down when you know where you stand with your finances.

Money Mistake #9: Not Setting Money Goals

Your gut instinct may be financial survival right now. Perhaps you lost your job or lost a portion of your income, along with 36 million Americans. In this circumstance, it’s easy NOT to think about anything other than making ends meet until you can replace that lost income source.

But I urge you to still plan ahead with your financial goals even if you’ve lost your job as it is crucial to regaining your financial foothold again. It also keeps things in perspective and helps you focus on what’s next and how to get there.

Your goals don’t have to be extravagant; they can be as small as committing to cooking at home 5-6 times a week or saving $20 more per week.

The important thing is that you still create money goals to strive for. It will keep you better focused and more proactive, so you don’t get stuck being reactive.

Money Mistake #10: Spending Money When You’re Bored

Most of us are bored right now. We’re stuck at home and many things are still closed. So, it’s easy to get into the bad habit of boredom spending. I’ve also found myself visiting the Amazon site much more often than I used to.

But spending money when you’re bored is just the same as impulse spending. It causes you to spend on things you don’t necessarily need and can really derail your saving efforts. Instead of boredom spending, find some no-cost activities that can pass the time.

Money Mistake #11: Misusing the Government Stimulus Payment

The U.S. government has issued a stimulus package, which includes $1200 for each adult, and $500 per child, depending on your income bracket.

While the stimulus payment is intended to stimulate spending and keep the economy afloat, you certainly do not have to use it that way. It’s a big financial mistake you should avoid right now, especially during the pandemic when everything is uncertain.

It’s better to use the stimulus check to build up your savings if you’re unemployed or pay off debt if you’re working (or a combination of the two).

The Goal Is Financial Stability

Avoid making these financial mistakes during a pandemic, or any other uncertain time.

The actions you take right now with your money can have long-lasting effects on your financial health. So, it’s important to take your time and think through your decisions with the mindset of staying financially stable.

Don’t make rash decisions with your money based on fear or boredom, decisions made this way only prove to harm rather than help.

Stick to a system that helps you stay in control of your finances, so you can effectively plan ahead and weather the storm until the economy recovers. 

Financial stability is the goal here, so avoid these 11 financial mistakes and you’ll be in a better financial position when the economy recovers.

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: bill.carter@civicfcu.org.

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