As a CPA, financial analyst, and founder of the personal finance site Young and the Invested, my best advice for anyone who is taking the time to think about their financial future is simple: Make sure that every choice you make, whether it's budgeting, investing, or estate planning, aligns with your wants, needs, and values.
When things are uncertain, it's understandable that you may feel at loose ends. My wife and I found that sitting down and having these three conversations have helped us keep things in perspective and given us a plan that we can rely on as we move forward.
Here are the questions we asked ourselves and that you can use as you conduct your own financial inventory and figure out how to stay on top of your money during the coronavirus.
You may already have a budget in place or you may be starting one now. Either way, before you start crunching numbers, have a sense of what you need to cover right now and what you are working toward. Make sure your actions align with your long-term financial objectives.
Remember that your budget is a living document. What you need from it is going to shift with your priorities, so regularly carve out time to sit down and review it, especially when dealing with major change.
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If the prospect of starting or reviewing your budget is overwhelming, break it down into steps. Start with just your most recent financial statements. Lay out your bank account and credit card statements, paychecks, and any other income streams. Then sort your expenses into categories, like housing, food, utilities, transportation, clothing, medical, household, and any other relevant areas that are important to you, like budgeting for an emergency fund.
For us, in addition to our essentials, one of the things that we have been thinking about is making sure we have the funds to do things like visit family members and friends when we are able to again, so we are saving with that in mind.
If you haven't done it before, investing can be intimidating. But now looks to be a good time to start, especially if you have the intention of investing for the long term. Stocks are considerably off their all-time highs, so consider your options.
You can certainly do your research and choose individual companies to invest in, but my advice for new investors is to start by purchasing one index fund. An index fund is a group of stocks that tracks a market index like the S&P 500 index or the Dow Jones Industrial Average. By choosing to buy one index fund rather than just guessing on several individual stocks, I automatically diversify my investments.
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If you have access to tax-advantaged investments in accounts like individual retirement accounts (IRAs), employer-sponsored retirement plans, or even health savings accounts, now would be a good time to begin considering making a contribution. And there are many options available to help save for retirement, regardless of whether you have an account through an employer.
In the event you are facing job insecurity or loss, you will want to weigh your ability to make these contributions against more pressing expenses like housing, food, utilities and medical care. If you currently have money set aside in one of these accounts and need access to it during this challenging economic time, make sure to review the rules around early withdrawal on account of economic hardship before doing so.
If you have already begun investing, you might have some fears about putting money into the market during uncertain times. It's understandable that emotions around investing can run high when the stock market crashes or booms. No one wants to lose all of their money nor miss out on greater potential returns.
My best advice is to take a step back and remember to diversify the types of stocks you invest in. Invest based on your risk tolerance and choose the assets you enjoy holding through good times and bad.
When it came to estate planning, up until recently, my wife and I knew if anything happened to us, we would transfer our assets and affairs to the other. Our plans had consisted of naming each other as beneficiaries on our financial accounts. After our son was born in October, we knew we needed to reevaluate.
When a dependent enters the picture, the stakes become higher because you are making decisions with someone else's future and well-being in mind. So we began to brainstorm potential scenarios that would allow us to best provide for our son in the event that one or both of us might not be there.
Even with social distancing rules in place, there are still some steps we can take without meeting with an insurance professional or lawyer in person. To that end, we have begun evaluating online life insurance options and will services. It's important to remember that this kind of planning isn't a one-time event. Ultimately, my best advice is to regularly review your options to make sure that the policies you have in place fit your needs.
Riley Adams, CPA, is originally from New Orleans but now lives in the San Francisco Bay Area, where he works as a senior financial analyst at Google. He also runs Young and the Invested, a personal finance site dedicated to helping young professionals learn about investing, managing, and planning their money.
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