Practical Advice for the Current Situation
Ok so it happened. Something we couldn’t have predicted occurred and is having far reaching economic impacts on people in a big way. As a refresher here’s the steps I recommend taking to get out of debt and take control of your personal finance:
- Change your mindset. What you have been doing isn’t working.
- Get on a written budget each month before the month begins in this order: groceries, utilities and insurance, gasoline, house payment/rent, then everything else.
- Save $1000 in a mini emergency fund.
- Pay off all debt except your house from smallest to largest regardless of interest rate as quickly as possible.
- Save 3-6 months of expenses in a real emergency fund.
- Begin putting 15% of your gross household income into retirement.
- Save up and pay cash for stuff, use cash not credit. Anything extra goes on the house.
That being said let’s walk through some examples of where you might be right now.
- Struggling month to month, in debt, feeling overwhelmed and facing a real or possible lay-off.
If this is your reality, get on a written budget immediately. Only spend the minimum and save up as much cash as you can. Pay minimums on debt if you can, if not oh well. Collectors might call after a few months but just hang up on them. Vehicles won’t be repossessed anytime soon and power won’t be cut off for a while. Stop any investing and pile up cash in your chequing account. You need to get a financial buffer built up in the short term to weather the storm and protect your family. This will end at some point (probably closer to 3 months than 3 years) and only then would you start the above process, get out of debt and begin investing again. If a layoff occurs, some places are still hiring. Grocery store employees actually got a raise! Don’t even think about upgrading cable packages or Amazon therapy and you have enough clothes already. Chances are that once you get on a good budget and only focus on the things that you NEED you can probably make it in the short term. A last resort would be deferring mortgage payments. This might be a requirement for a minority but the math on the interest is so predatory that I would do everything possible to avoid it.
2. Jobs are secure, expenses and debt are low and most stress is coming from ‘what ifs’ than reality.
Calm down. Do a written budget and see how much you probably have left over at the end of each month. Factor in less gasoline and restaurant usage and take a breath. I want you to get out of debt and if you want to start the above steps it’s probably ok. If not, that’s fine and you’ll get to it in a month or so when this current storm is over with. Scrape an emergency fund together and leave it in your chequing account. If a few credit cards don’t get paid this month don’t sweat it. Probably no need to slash your lifestyle but don’t go crazy.
3. Jobs are secure, no debt except the house, emergency fund in place.
This is probably the minority, but if it’s you congratulations! Have a look at the budget for peace of mind, double check the emergency fund and shed a tear when you look at any investments. Not to worry, they’ll go back up after this is all over, just like the Great Depression, Y2K, H1N1, 2008 etc. You might want to check in with your advisor if you have one, but I wouldn’t sell right now…everything’s on sale! If someone you know is struggling, you may want to help out and that’s great, but NEVER lend money. I would rather you give $500 than loan a friend $1000. If you do give someone cash, you also have a right to set some conditions. I’m sure you’d be mad if cousin Joe says the baby is starving and then he posts a beer can castle on Instagram. Be nice if you are out and about for necessities. Most 50+ grocery store employees aren’t there at 7pm on a Saturday behind a sneeze guard because it’s their dream job so don’t act like an entitled jerk.
Warren Buffet said that when the tide goes out you can tell who was skinny-dipping. The tide just went out and if you feel exposed right now consider it a wake-up call (see Step 1 above). Lots of people look great, make good money but are broke, in debt and live paycheck to paycheck. You can get away with it for a while but unfortunately it takes a crisis to show how delicate some situations are.
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