In many ways, 2020 has been the year of COVID-19. The global pandemic has exerted a major impact on many aspects of our lives, causing some businesses to close or cut back, creating work-at-home as the new norm for many people, and disrupting the ability of many folks in Chicagoland and elsewhere to plan for the future.
For right now, the end to COVID-19’s effects are not fully in sight. In fact, mid-October is seeing a resurgence of cases. Election uncertainty clouds the picture even more, as politicians vary in their response.
Should people in the Chicago area re-assess their financial plans due to COVID-19? If they should, how should they?
Frankly, the effects of COVID-19 are now long-term and ongoing enough that it’s prudent to re-assess your financial plans in light of it. If you are directly affected, such as seeing a family member or yourself through illness, job loss or work furloughs, then you should definitely take sufficient time to thoroughly re-assess.
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But what if you aren’t directly affected? Your job could be stable and your health robust. Even then, the long-term macro effects of COVID-19 could affect you. The overall economy is certainly affected, as are certain business sectors. It’s worth re-assessing potential effects on all parts of your financial plan.
Here’s a quick review of the factors to re-assess.
Your Goals
Remember as you re-assess that the primary point of a comprehensive financial plan is to further your individual life goals. It is not achieving abstract financial goals or beating the Joneses! The first step in any re-assessment, then, has to be revisiting your life goals to develop a holistic plan for achieving them.
Have your goals changed due to the pandemic (or any other reason)? Do you want to spend more time with your family in the future? Or, when travel becomes easier, do you want to put long-term travel plans in place? Do you want to move to the country, or to a city once that’s feasible?
Have any life changes occurred during the year that affect your goals? Are you expecting a new child or grandchild, for example? Is a new marriage or divorce likely to affect your plans?
Your Cash Position
Once you reassess and reformulate your goals, you can move to the next part of a comprehensive financial plan: keeping track of your cash flow.
Ordinarily, this involves monitoring your expenditures and income and making sure that your expenditures don’t exceed your income. But COVID-19 played havoc with many people’s cash flow!
If you suffered a job loss or a furlough, your income may have been negatively impacted. If so, draw up new cash flow statements reflecting any new sources of income, such as pandemic-related government loans or unemployment benefits. If you need to belt-tighten on expenditures, do, to avoid going into debt.
On a more long-term front, soberly assess your income and business plans. Many sectors, such as travel and restaurants, have been hard-hit by COVID-19. If your job or business is in one of them, project your likely income for the future. Be sure to monitor it going forward.
If your job or business plans should switch to another sector, assess what the likely sectors could be. What is the projection for the economic health of that sector?
As part of cash management, it’s a good idea to keep an emergency fund of three to six months’ worth of income. Does this need to be raised due to COVID-19? If you had to draw it down due to COVID-19, what are your plans to increase it again?
Your Investments and Retirement Funds
Comprehensive financial planning includes managing your investment and retirement portfolios in line with your goals.
It also includes monitoring the performance of all your portfolios, planning and monitoring asset allocation, and rebalancing portfolios.
The goal of asset allocation is to manage growth along with risk. For many people, the risk may seem more real this year due to COVID-19. Do you want a less risky portfolio? If so, you’ll likely want to allocate more to bonds and cash instruments.
Despite a stock market plunge early in the pandemic’s history, stock market performance has been solid overall. But the continued recession can affect company profits, and thus affect the stock market. It’s prudent to discuss your asset allocation, portfolio goals and plans, and rebalancing with a CERTIFIED FINANCIAL PLANNER™ Professional.
One helpful strategy is to work with multiple financial projections and allocations, to help determine the right strategy both for growth and your risk tolerance.
Risk Management
Risk management such as sufficient insurance is also an integral part of financial planning. Breadwinners with families may want to consider life insurance, for example. Your assets, such as houses, cars, and personal property, should be adequately insured.
Educational Savings
Educational savings such as tax-advantaged 529s are also part of comprehensive financial planning. Your contributions to these should be reviewed in light of COVID-19. Should you maintain your contribution, increase it, or cut back?
Estate Planning
A sudden and potentially fatal illness like COVID-19 underscores what financial planners have long known about estate planning: everyone needs it, no matter what their age.
An estate plan includes a will (or living trust) specifying your assets and who you want to receive those assets in the event of your death. Folks who die without a legally binding will (intestate is the term) can leave their family without access to their assets until the will goes through probate – which can take months and even years.
The only way to make sure that your loved ones or institutions such as charities receive the assets you want them to have is to leave clear instructions in a will.
Estate plans also typically include financial and medical powers of attorney. Powers of attorney give designated individuals the right to make decisions about your finances and medical care should you become too ill or incapacitated to do so.
COVID-19 has caused all too many people to become ill or incapacitated – a vivid, if highly unfortunate reminder of the necessity of a plan.
CERTIFIED FINANCIAL PLANNER™ Professionals receive training and must demonstrate experience in all categories of a financial plan. They take a holistic approach to aligning your personal goals and their achievement with your financial plan and its objectives.
At Prism Planning Partners, we are CERTIFIED FINANCIAL PLANNER™ professionals committed to facilitating your important questions so that we can help you explore all of your many opportunities. We offer a broad array of financial planning and consulting services for our clients-including estate planning.
Contact us today to re-evaluate your financial plans so minimize any negative effects of COVID-19 and set you and your family up for long-term recovery.
