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Although the crisis has changed our daily habits for now, and will no doubt change some of the ways we view life on a more lasting level, there are two things I can promise. The pandemic will end someday. And eventually, though we don’t as yet have a sense of when, the economy will recover.
The causes of this downturn are very different from those that brought us the recession of 2008-09, when the financial system itself caved in after taking on way too much risk. But for every economic disaster and ruinous period—if you’re old enough you will recall the 2008 crisis, the dot.com crash, maybe the stock market crash of 1987—a period of recovery and growth follows. With any luck, everyone learns something from previous mistakes.
Here are some additional thoughts on change. Consider using this time as a chance to gain more financial wisdom and put yourself on a path to avoiding angst and anguish. We can’t predict the future, but we can set about making ourselves more financially resilient—meaning more immune to economic havoc.
Here is my nine-point plan for finding financial wisdom in adversity:
1. Have a money conversation with your partner/spouse/significant other. Avoid any triggers that will devolve into an argument. Instead ask each other questions that provide insight to your money beliefs. As Stephen Covey said, “first seek to understand, then be understood.” A productive money conversation is the basis for the next step, your Values Statement.
2. Create your Values Statement. This statement announces, in clear language, what you care most about and how you will attach your beliefs, behaviors and habits to your values. For example, “We will live within a sustainable spending plan. We will be mindful of our purchases and consider their impact to our financial well-being.”
3. Make your Values Statement the centerpiece of all your financial decision-making.
4. Regardless of the diminishment of market value today, when you retire you will need a stream of income, not a lump sum. Don’t panic over short-term disruption; put today’s turmoil into perspective.
5. This is an opportune time to recognize that there are always risks, and then review your own overall allocations and ability to take on risk. The risk you take in up markets and the risk you’re willing to take in down markets need to be in harmony.
6. Review your allocations and if you need to sell off assets, sell from your holdings in fixed income or other areas that have been less assaulted. Yes, I know, the tendency is to give up on your beaten-down stocks, just so you don’t have to look at the numbers. Resist that urge.
7. Review the performance of your investments compared to their benchmarks. If they’re materially off, it’s time to ask questions and maybe look for a new strategy.
8. Analyze your spending over the last 12 months. Are there significant or unaccounted-for fluctuations? There’s no better time to make course corrections or adjustments.
9. If you have a written financial plan, check out your actual experience vs. what you’ve projected. If you don’t have a plan, maybe it’s time to focus on getting an objective eye on your financial picture.
You can spend your time in front of the TV in crisis mode or you can put this challenging time into perspective, taking actions that will improve your money life over the long term. The price of wisdom is usually hard-won, but that’s where experience and resilience matter.