Financial Strategies Borne From Difficult Times

kcfield
  |     |   74 posts since 2012

The pandemic has been a dark and difficult time, but from this crisis has arisen the opportunity to develop wiser and more resilient financial strategies. These are the lessons I have learned; they are not intended as advice for others. Please take what is helpful and leave the rest.

1) Emergency Savings: No longer does three months of emergency savings seem even remotely sufficient. The pandemic has taught me that loss of income can come suddenly and last much longer than anticipated. I will always keep a minimum of six months of emergency savings going forward, with twelve months being my ideal goal. Maintaining these minimums should not be interest rate dependent.

2) The Semantic Range For Savings Extends Beyond, Savings, CD, and Interest Bearing Checking: With interest rates being close to zero, I took the opportunity to make major principal payments to my mortgage. If I were not otherwise debt free, I would have paid down my credit cards in order of descending interest. If one makes a 5K payment on a 7% interest credit card--it is just like earning 7% in savings. Debt reduction should therefore be included in the semantic range of savings--often a fine alternative to savings or CD once emergency savings is established.

3) The Value of Liquidity: While some will tie up money in a CD in order to earn 40 or 50 basis points more than a savings account, I find that such a paltry improvement is not worth the price of losing liquidity. For me, I would not consider tying up funds in a higher interest option, unless the CD was offering a minimum of 100 or 150 basis points higher than my savings account. Liquidity is precious.

4) Anxiety Makes for Poor Financial Decision Making: The financial and savings strategies I have developed during these pandemic times will not be changed by fear or anxiety. Certainly my plan will be intelligently adjusted as interest rates rise; but in no instance should fear, worry, and anxiety determine one's financial decisions. If one is anxious about their investments, perhaps they should adjust to lower risk options based on their risk tolerance.

These are four of the most helpful lessons I have learned during this pandemic time. I look forward to hearing from others.




Choice
  |     |   450 posts since 2020
What/where is the objective or financial strategy/plan?…for what time in future? But first…And the original plan 5 years ago? 3 years ago? 1 year ago? What was wrong/right then and what is wrong/right now? Or is it day to day planning?  PS as stated before if capital/pensions/social security, etc are “sufficient”, then a goal to manage expenses may be overarching!  What’s in your toolbox?
kcfield
  |     |   74 posts since 2012
Choice: A strategy is by definition "a plan of action or policy designed to achieve a major or overall aim." Certainly, such plans--as you correctly state and imply--may involve specific time frames, and clearly articulated objectives--which in many instances (such as in the establishment of a business plan) are essential. In this instance, the development of wiser and more resilient financial strategies does not refer to specific, time-specified goals, objectives, and strategies; but rather to the the correction of a mindset, which was ill prepared for the vicissitudes of a crisis. You are correct as well, that I did not articulate the baseline state of my planning or state of mind, which would have been helpful for process improvement analysis. Yet, to remain brief, my baseline/premorbid state of mind was implied rather than stated. The overarching strategy is to have a plan--which like building a house on a strong foundation--will bear whatever storms come. Specifically, for me, this has meant significantly increasing emergency savings, using this infertile time for savings to reduce debt, maintaining maximum liquidity rather than chasing paltry basis point increases, and finally trusting, that by being well prepared in these ways, that I need not become anxious with every shifting tide of crisis and market correction. It may be that these are not helpful to you since they lack both clarity and specificity as you correctly stated. But for another reader, they may be of some value. That is why I said, please take what is helpful and leave the rest.
Choice
  |     |   450 posts since 2020
Thanks…a plan that considers potential economic recessions, acts of god and other emergencies, etc is what I was looking to see and compare notes. And how that prior plan needed to be updated or…b/c of….in the noted pandemic time era.  Personally, all long term debt was eliminated years ago…only monthly credit cards.  Have guaranteed payments, eg pensions, Soc Sec, sole proprietorship, etc. that covers all “needs.” Everything else is IRA and CDs with withdrawals from former based upon targeted tax bracket for year (and available, if any, long term CD rates) and latter migrating to ibonds for near term.  And negotiating with FIs for higher rates/terms.  Managing expenses is key.
Infinityy
  |     |   31 posts since 2020
In regards to #3 I think it is good to be diversified across early withdrawal penalties. If you have some CD's that you can access at a cost of just 30-90 days' interest, that provides significant flexibility
Ally6770
  |     |   3,049 posts since 2010
Remember when we started out. We banked my paycheck and lived on 3 checks per month of my husbands checks and banked the 4th week. The months that had 5 weeks we put that in the vacation or fun fund or for extras that we wanted. This was in 1961 when minimum wage would support a family of 3. But we only had one car and depending on the shift my husband worked one of us walked to work. It was 2 miles for me and 3 1/2 miles for my husband. I had sidewalks and my husband did not.


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