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With the rapid spread of the coronavirus, daily life for many Americans has been fundamentally altered. As the number of confirmed cases continues to rise, there is tremendous financial anxiety throughout the United States.
Even with the recently passed historic $2 trillion financial stimulus package, which offers financial assistance to families and businesses, the economic future of millions of Americans remains uncertain.
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With millions of Americans under "shelter in place" orders, the U.S. economy has come to a virtual standstill. Schools and businesses across the country have temporarily closed as a means to contain the virus, leaving people with many unanswered questions. The near-term future is far from clear.
There is a growing sentiment that we are living in a new normal, at least for now. Here are 7 steps that you can take, no matter your financial position, to discharge risk from your financial life and protect your wallet during the coronavirus pandemic.
1. Control Your Panic Selling
Investors are faced with some of the worst days of trading on Wall Street in almost three decades. The market has turned to panic selling as investors discard risk from their portfolio. This is a fear-based approach to investing, which you must fight to contain.
Fear is public enemy number one, particularly during bear markets. Panic sets in, often clouding judgment and leads to poor financial decisions. When investors are distracted by the delirium of market downturns, mistakes begin to compound. As stock market volatility increases, it is paramount to maintain lucid control over yourself and your portfolio. Fight the urge against reactionary panic selling.
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2. Tighten Your Spending Patterns
One of the easiest ways to manage financial risk in your daily life is to get a grip on your spending. As millions of Americans are now forced to manage their monthly cash flow, this will be a major area of focus. Luckily, this is often the area where people can pull in the reins very quickly, curtailing all non-essential spending almost instantaneously.
Examine your variable costs, or those costs that fluctuate based on your level of consumption, and trim those that are not needed. Begin delaying purchases that would otherwise eat up a large portion of your monthly cash flow: new clothes, expensive meals, or non-essential ‘fun’ purchases. Pausing subscriptions can also be an effective means of shredding unnecessary cash outflows.
3. Shore Up Your Emergency Fund
Emergencies will always come, particularly when you least expect them. It pays to be prepared. If you already have an emergency fund, now is the perfect time to reallocate more saved spending into your emergency fund. If you don’t have an emergency fund, there is no time like the present to make one.
Personal finance experts recommend having an emergency fund, with recommended balances ranging from $1,000 to $3,000. If you want to mitigate your exposure, then default to the higher end of the range. Pretend that every paycheck in your last and do everything you can to financially distance yourself from financial anxiety.
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4. Track Your Cash on Hand
Monitoring your monthly cash flow allows you to accurately forecast your monthly budget. During times of unrest, take the time to sit down and map out your monthly inflows and outflows in a granular fashion. This will give you clarity into your specific financial situation and dissipate anxiety around fear of the unknown.
After you have transparency into your financial circumstance, begin the process of monitoring your cash on hand, beyond your emergency fund. Make sure that your daily, monthly, and quarterly needs can be met. Plan out your personal financial contingency procedures and take the time to engage in scenario analysis by mapping out your basic needs, all along the way ensuring you have ample cash.
5. Plan on Giving
During times of economic turmoil, it can be hard to focus on anything outside of your immediate needs. As is often said, money does not change someone, it only reveals them. Remember that there may be someone, less fortunate than you, who needs a helping hand. Plan on lending that hand, no matter the social distance.
The act of giving, of time and money, can also increase your mental and financial well-being. Research shows that spending even small amounts of money on others can make a difference in your happiness. According to a Gallup World Poll, donating to charity had a similar relationship to happiness as doubling household income. It pays to invest in others.
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6. Gamify the Problem
In times of immense stress, laughter can be an effective antidote. Whether you are prioritizing which monthly purchase to cut back on or deciding how best to tighten your financial belt, make it a game as best you can. Help release the stress of the moment by getting your family and friends involved with your decision. Chances are they are facing the same challenges.
A pandemic does not obviate the need for fun or physical fitness. Take advantage of all of the free online resources for your mental and physical fitness and build in regular routines into your daily life. As you concentrate on shoring up your financial health, keeping your mind and body healthy are essential elements to a rich life.
7. Remain Focused on the Long-Term
Protecting yourself financially is not about focusing solely on short-term needs. Instead, true financial protection grows from financial prudence in both bull and bear markets. Diligent and consistent investing are essential elements for long-term portfolio growth, while market timing, as an investment strategy, can lead to below-market returns.
As the economy continuously expands and contracts, it is important to remain focused on your financial goals. While temporary setbacks may force you to momentarily adjust your strategy to reach those goals, always remain focused on your long-term financial outlook. The ephemeral fear of the moment will pass, and the bull will eventually replace the bear.
Conor Richardson is the author of "Millennial Money Makeover" and founder of ConorRichardson360.com where he helps millennials tackle essential money matters. Follow Conor on Twitter or Facebook.
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