There is no perfect personal finance plan
We have a world in crisis – economies are collapsing. Healthcare systems are fighting a viral war. COVID-19 is taking over our every action.
The financial pros will tell you “this time it’s different.” Yes, the triggers for financial catastrophe are different but the outcomes are rather predictable – markets can and do crash. Sometimes the crash is significant.
Coming out of this crisis though, and we will eventually emerge from it, I’m optimistic. I say that because at the anthropological heart, we are a very resilient species. We also have tremendous ingenuity. With all those perceived superpowers, that said, I do sincerely hope we remember how we feel right now and turn it into positive action at some point – it would be great to be more collectively kind to Mother Nature after some of this stabilizes in the months or year to come…
On a personal finance note today, I’m here to tell you that as much as you might plan, financially or otherwise, nobody saw this coming.
There is no getting out of this healthcare and economic crisis unscathed – everyone is impacted to a degree.
I suspect how much you’re impacted depends upon how much you’ve planned over the years for events (that could be…) like this. Even then, nobody knows how this might play out – for you, for your family, for your loved ones and friends. That thought can be downright scary.
This means there is no perfect personal finance plan to combat something like this.
80,000 personal finance books and advice into simple bullets
I’ve read dozens of personal finance and psychology books on money over the years and I can distill those gazillion pages down into the following, simple, point-form bullets. Ideally, these are things we should all strive for and continually practice based on generations of financial expert suggestions:
- You should work hard to get out of debt and stay out of debt.
- You should spend less than you make.
- You should establish and maintain an emergency fund. Ideally, at least a few months’ worth in cold-hard cash.
- You should make savings for investment purposes automatic.
- You should invest a good portion of your savings for long-term growth; as in equities.
- You should invest a small portion of your portfolio in fixed-income, to act as a parachute when the stock market crashes.
- Investments should be made in a manner that consistently aligns with your risk tolerance; don’t take on any investment risk beyond what you need to, to meet your financial goals.
- Once invested in equities you should stay invested, without fail if you can help it.
- Once invested, you should keep your investing fees as low as possible for as long as possible.
- A reminder the 4% safe withdrawal rate is not gospel but a guideline. It make not make any sense for you.
- You should diversify your investments across companies, countries and world economies.
- You should mind your taxes.
- You should obtain adequate life and disability insurance for the “what ifs” in life to protect against a catastrophic financial loss.
- You should keep a will up to date, including any powers of personal care.
- You should continue to educate yourself; continuous improvement will keep your mind growing and active.
- Money doesn’t mean much if you don’t have your health. You should do what you can to stay healthy. Health is always the ultimate form of wealth.
Of course, these things are easier said than done. Let alone doing all these things with mistake-free proficiency over the years.
I mean, who does all this stuff and stays on top of it?
Who has never made any financial mistakes?
Who is a real star on all things health and wellness?
Very few of us. I have no problems admitting I’m far from perfect on any one of these things.
Amidst the COVID-19 crisis we’re all wrestling through right now, this is a perfect time to remember that you can’t have it all. Despite our best efforts, it’s near impossible to have all your $hit together all the time, let alone extremely rare to have it together for any short period of time. The notion that you or your family might have been better prepared for this crisis “if only I had…” is both fallible and just not helpful right now. Don’t beat yourself up.
Yet on the flipside, you and I won’t be able to predict the resolutions from this crisis either. And in many respects, that’s a good thing.
Times of crises have a way of re-focusing our species on what’s really important. We fight or flight. Those decisions can actually deliver a plethora of longer-term opportunities we would have never realized without the crisis to wrestle with in the first place:
- Maybe you now feel you own too much house and/or too much car. The financial strain caused by this viral pandemic could potentially allow you to reset how much you really, really need for you or your family.
- Maybe you’ve taken on too much debt over the years. Cheap credit seemed like a great idea and something easy to pay back the minimums on at the time. Hardly now with any lost family income. This crisis has exposed an unequivocal conclusion to us, while some debt is OK lots of debt and/or bill obligations can be financially crippling. These are financial stressors some of us never want to live through again.
- Maybe your portfolio is on life support by taking on too much investment risk. This recent market crash (including the thousands of points yo-yoing every day) could actually be a blessing for you – the gift of a bear market reveals how much risk you’re actually willing to take on and live through going forward. Maybe we all have a new-found appreciation for keeping more cash and/or fixed-income. I certainly do.
And my list could go on and on and on…
Crisis builds character
They say times of crisis builds character. They reveal things about your nature you didn’t know existed.
Whether you aspire in your life to live like The Millionaire Next Door and adopt some lifestyle principles on that path to financial independence is your choice. No blog or book or podcast or personal financial talking head is going to make you really do anything you don’t want to do anyhow.
It is my hope however that in any time of crisis, including the one we’re collectively trying to work through called COVID-19, that we all take some time for deeper reflection and realize what’s really important in our lives.
I’m certainly going to do quite a bit of that.
Do take good care and stay safe,