It’s a difficult time to talk about finances as unemployment rates climb and the stock market craters. We are here to help support you in making the best decisions for your personal finances while times are tough.
On this week’s episode of Fresh Take, Kevin Fitzwilson of Coldstream Wealth Management, shared his takeaways from surviving the last two economic downturns. Kevin’s advice will help inform your financial decisions whether you’re navigating how to manage money when funds are tight or looking to make the right investment decisions.
Managing Money When It’s Tight
Reduce your spending
During this time of unprecedented job loss and lay-offs, revisit your budget and evaluate your spending. You can’t control your income or the performance of your assets, but you can control where your money goes. Identify areas where you can reduce costs to help avoid pulling more money out of savings.
Decide where to pull money from
If you are struggling to find enough money to pay for your living expenses, start by pulling money from an emergency fund if you are fortunate enough to have one. If this is not the case, Kevin recommends looking into the following loans:
- Line of Credit: Consider tapping into an existing line of credit on your home or a personal line of credit. You can draw from the line of credit when you need it up to the maximum amount, paying interest on the amount you borrow.
- College Savings: You can also consider taking money out of education accounts that you have saved for members of your family. However, avoid taking money out of 529 plans because you may be subject to a penalty. You may also be subject to income taxes on the gains and may even have to pay back state income tax deductions you have already paid.
- Loan Agreements with Family and Friends: Borrowing money from friends and family can help you to avoid high-interest fees that can incur from other types of loans. These agreements can offer you more flexibility.
- Investment Portfolio: If you have an investment portfolio, you can borrow money in the form of a margin loan. A margin loan allows you to borrow against the value of securities you already own. You may not want to do this on an on-going basis, but if you have a brokerage account with liquidity in it, brokerage firms will generally allow you to borrow up to 50% of the value of your portfolio in after tax monies to bridge your liquidity.
- Retirement Accounts: Kevin recommends taking money out of your retirement as a last resort option. Right now, the CARES Act has relaxed provisions around accessing retirement funds early. However, be careful with this. This is money that you’ve set aside for your long term financial well-being. You don’t want to destroy the financial resources you have put in place for yourself at the end of your career.
Renegotiate your debt
Renegotiating your debt can be a good way to reduce high interest rates that may be burning a hole in your pocket. You may be able to refinance your mortgage and renegotiate car loans and credit card debt.
Go through the list of the debts that you have and find the debt that is the most burdensome. You will then be able to look at consolidating and renegotiating. Consolidate your debt into a margin loan or a line of credit if possible. If you find that you have your debt spread around, try aggregating it with one lender.
Making Smart Investments
Chaos and uncertainty can create opportunities to invest capital and acquire assets if you are in a strong financial position. Assess your financial situation independently and make sure that you are in a safe and secure place to invest extra funds.
If you are watching Wall Street right now, every day seems to be characterized by new losses. This may feel unsettling, but don’t let fear drive your investment strategy. This is a good time to work with a financial planner who can act as a neutral third party to help inform your decisions.
Rebalance your portfolio
Most portfolios include a mix of stocks and bonds based on your long-term investment goals. Rebalance your portfolio by shifting bonds into stocks while stocks are offered at a lower price.
Time in the market has a significant impact on investment accounts. If you are a younger worker, you may want to place more money into investment accounts while stocks are essentially on sale for your long term gain.
Look at opportunities to acquire assets
For sophisticated investors, look at acquiring assets. Some businesses will face bankruptcies and you may find that this is a good time for you to invest in a privately owned business. Strong companies will pivot and find opportunities to innovate and come out of this successfully.
Start the Conversation about Estate Planning
Right now, there are scary, real-life health issues that many families are facing. Use this time to have a candid conversation with your family about estate planning. Start the conversation by reminding your family members that you love them and that you are worried about their estate plans during this uncertain time.
Managing your finances during uncertain times can be difficult, but we are all in this together. For more financial tips and recommendations, follow Kevin and Coldstream Wealth Management on Fresh Chalk.