During these strange times of Covid-19, I waver between frustration at the difficulty of working from home with two little boys (ages 3 and 1) and thankfulness that I have a job, income, and healthy family. I think of the many people who are struggling with health issues, the deaths of loved ones, job losses, or closed businesses. Fears about finances and the stock market are very real. You may be wondering what steps you can take to improve your financial life during these unsettling times. I would like to share some thoughts on how to use your stimulus funds and staying invested during anxious times.
If you received stimulus income, you may be considering the best way to use it. If you lost your job or don’t have your regular income, the best way to use those funds is for your current living expenses. This may be a good time to create a budget to capture a good understanding of your needed living expenses, so that you have a plan for when jobs and incomes are back to normal.
If you still have your regular income, you have other options for what to do with the stimulus money. If you don’t have three to six months of living expenses set aside in an emergency savings account, it’s best to save the money. So many of us think we will always have an income, but Covid-19 has taught us that the unexpected can always occur. Prepare now, by setting up an emergency fund for the next unexpected event that could upset your financial plan.
If you already have an emergency fund, use your stimulus funds to pay down debt, starting with the highest interest rates: credit cards, student loans, car loans, or home equity loans. Even if your payments are suspended or interest drops down to 0%, it will only be temporary, and you can get out of debt quicker if you can pay more toward principle now.
Another option is to use your funds to benefit others. Being generous with your money can increase your happiness. Consider giving to non-profit organizations, buying groceries for someone struggling financially, or supporting local businesses. There are many creative ways to help improve your own financial life or help someone else.
In addition to income and job losses, another current financial concern is the volatility of the market. It is always concerning to see a large drop in the value of your investment accounts. While we don’t know the depths or length of this current market decline, history has shown us that markets have always trended up over the long term.
It’s also important to remember that while the value of the shares you own has dropped, you still own the same number of shares. Do your best not to panic. If you sell stocks while prices are low, you lock in those losses unless you are able to favorably time the reinvestment of the sales proceeds. It’s very difficult to time the market, so it’s best to talk with a financial advisor if you have questions about your investments.
As we muddle through these uncertain times, make sure you think about your finances and how you can improve your financial situation or the financial situations of others. Be intentional about how you use your stimulus money and don’t panic about the markets.
Please Note: No portion of the above serves as the receipt of, or as a substitute for, personalized investment advice from Foster Group.