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We are reeling from the effects of COVID-19. The stress of uncertainty weighs heavy on all of us. Many are faced with the challenges of balancing working from home and caring for children whose schools have closed, travel plans that have been cancelled, the vulnerability of our elderly parents and more.
Life has changed.
I am taking a more somber approach to the topic of money and will answer the question, “What should I do now?” Let’s address some of the biggest financial concerns your clients have as a result of current events, so they can take action and keep control financially.
But first, take five big, deep belly breaths. Be kind to yourself, you’ve got this.
What should your clients be doing now?
Income
If you believe your clients’ income will be impacted as a result of events, ask them to put some thought into what a conservative income might look like this year. Spend a few minutes penciling out their expenses so they know what they must pay for, versus what they’d like to spend money on. Take a look at every expense, including contributions to retirement accounts and investment accounts. Ask if they can continue to cover the expenses they have with a decrease in income. Focus on conserving capital.
If they believe they will not be able to cover their current living expenses, choose where they can cut. Start with the expenses they truly don’t need – like entertainment, dining out (or take out, my current option), and online shopping. We each have our weaknesses when it comes to spending, so take a look and pledge to cut.
Some expenses can be temporarily deferred, like mortgages or federal student loans, as a result of the government relief provided in the CARES Act. This can free up needed cash for living expenses.
This may be a time when they have to dial back their 401(k) contributions temporarily. I don’t offer this lightly, but in times like this, if it makes the difference between covering costs, either cut back or stop altogether retirement contributions for now.
Resist the temptation to use credit cards to cover the financial gap. It can be hard to dig out of debt once clients have it, and putting living expenses on a credit card is a signal that they truly cannot afford their lifestyle.
If clients have an emergency fund, this may be the time to tap into it. If they do not and income is still at a point where they can prepare for a potential decrease in a few months, put aside enough cash to cover at least three months of fixed expenses.
Alternate sources of income
I’m not talking about another job, but clients may be in a position to refinance their house. Rates are at historical lows, and this can reduce their monthly costs by several hundred dollars, which could be used for living expenses. The refinancing market is all over the place now, so keep an eye out here for when it may make sense for your clients.
If clients run their own businesses, they may have opportunities in terms of generating different sources of income. Some of my attorney clients have added expert witness work to supplement litigation income or considered coaching other attorneys.
There is also an opportunity to cut business expenses so that more money passes through to your client, as the business owner. Take a hard look at all business expenses your clients have and consider cutting areas they can afford to without impacting business revenue.
Consider applying for one of the government relief options. If your clients are business owners, consultants, or 1099 employees, there are several options here for support including the economic injury disaster loans (EIDL) and payroll protection program ((PPP) loans. You can read more about each of these options at sba.gov.
If they are employees of a company, clients may qualify for a Recovery Rebate check, depending on their income. If they have been furloughed, there is increased unemployment relief, which is also available to self-employed and consultants.
Retirement accounts
For most of your clients, their retirement accounts have suffered a marked decline in value. If they have a well-diversified portfolio, and the investments are in line with their goals, my best advice is to stay the course. This is not the time to sell stocks. Resist the temptation to sell investments and move to cash. We have been here before with the market, and we expect we will recover. Clients should limit media intake; if retirement is decades away, try to resist checking on accounts daily.
We know that changes in contributions and withdrawals have the greatest impact on success of a financial plan, bigger than changes around stock and bond allocation. If now is the time for clients to dial back how much they contribute to their 401k because they need the money, tell them that as soon as life is back to normal and income has recovered, they should increase the 401k contributions.
There is a lot on everyone’s mind, and financial uncertainty creates tremendous stress. Tell your clients to take a few breaths, limit intake of the news, and get their hands around their financial situation. There are some actions they can take to make sure they will be okay now and in the future.
Bridget Venus Grimes is president of the financial life planning firm WealthChoice, and is passionate about helping women attorneys make smart financial choices and live the life they want.
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