In an uncertain world with layoffs, shaky markets, and a global pandemic, what role does financial planning play?
Financial planning is ultimately resource management. It’s figuring out how to leverage your financial resources in order to achieve your life's goals. Here's an important truth about financial planning: A great financial plan is dynamic and may need adjustment during times of uncertainty. Money moves in motion and now is a strategic time to review your plan.
Here are a few checkpoints and considerations I have been running through with my clients:
No payments are required for federal Direct Student Loans. Consider applying your savings to any high interest debt outstanding or build up your emergency fund. If you’re not a candidate for Public Service Loan Forgiveness, and you can afford it, it may make sense to continue making payments to cut into your principal.
Mortgages are hitting several record lows during this pandemic. Considering a refinance can be a smart move. However, it comes down to a few important factors - your time horizon in a home & closing costs. Some banks are levying high closing costs so make sure to run the numbers. Here's a helpful calculator.
Depending on your portfolio, there may be some room for tax-loss harvesting where you can offset capital gains and apply a loss to reduce ordinary income. However, be careful of wash sales.
For long-term investors, while markets are still volatile, it's an opportunity to capture discounted prices. Be very careful of trying to time the markets. The markets are a tool for long-term investing, not short-term. Here's a helpful reference: What Happens When You Fail at Market Timing. Also, if you haven’t built up your emergency fund, it’s probably not the best idea to start investing.
Property & casualty carriers are offering discounts. Check with your current carrier or consider shopping out coverage for home/renters, auto, umbrella, and earthquake (if applicable).
Many life & disability insurance carriers are offering expedited underwriting. See if your employee benefits have any gaps. Generally, you should have as much "own occupation" coverage as possible. If you're not sure what that means, send me an email. To see how much life insurance you need, check here:
Consider reevaluating your long-term savings plan. Are you still on track to retire on time? Running through a retirement calculator can give you a rough estimate.
Is your cash flow tight? If so, break up your expenses into essential & non-essential categories. Are there any ways to reduce non-essential costs? If so, spend some time reflecting on your values and remove those expenses that add no value.
The tax due date for filing and paying was extended to July 15th. This means you have an extra 3 months to make a direct IRA contribution for tax year 2019.
If you have access to an employee stock purchase plan, consider participating to lock in the discount. Depending on your situation, selling immediately can be a smart move to create some extra cash for living expenses.
If you have employee stock options, consider the spread. If the spread is low and you need the cash for living expenses, consider exercising as it will result in lower taxes. However, you'll want to run a tax projection for a few years into the future to weigh the pros & cons.
Do you own a business or have supplemental income? If so, you may be eligible for a small business loan, grants, or other forms of federal, state, and community relief.
Have extra time? Consider refining your skills and enroll in an online course. Harvard and many institutions are offering free and discounted courses for professionals. As Ben Franklin once said, "An investment in knowledge pays the best interest."
Hope you found this list helpful. And remember, there is no one size fits all approach to planning. Everyone has their own journey with unique goals & values.
Reach out for a complimentary consultation if you're curious about how to apply these to your situation.
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