Individual Financial Planning Opportunities

The basis of financial and wealth management planning is preparing for future opportunities as well as for the unexpected. Based on each person’s individual financial situation, the market volatility and the economic impact of the coronavirus response will prompt a different set of questions and concerns.

There are a few things that everyone needs to consider in times of uncertainty:

1 - Emergency Savings

This pandemic situation reminds us of the importance of being prepared for the unexpected with an emergency fund. While the size of the fund will vary depending on lifestyle, monthly expenses, and dependents (if applicable). If you do not have an emergency fund already, you may need to consider adjusting your spending to have more cash available from your regular budget to help cover unexpected costs that may arise in the coming weeks.

2- Budgeting & Cash Flow

Going back to the basics is always a good idea, but right now, getting a handle on financial variables is especially important.
Start by asking the following questions:

• What is my family’s monthly income?

• What are my family’s average monthly expenditures?

• If changes in income are anticipated, what expenses can we adjust to get ready for those potential changes?

• What expenses can be reduced in the short-term?

• What expenses need to be addressed for the longer term?

Remember, it is likely that typical entertainment and food expenses may decrease in the short-term due to cancellations and closures. Also, consider what new costs you are likely to have as a result of this situation.

Times like this also remind us that using an online budgeting tool or expense tracker can be beneficial in truly understanding where your money is being spent each month and where changes can be made if necessary. Many banks provide budgeting tools that categorize previous expenses retroactively, providing insights on individual budgets. Mint.com is another resource that can be used to track bank accounts, credit cards and bill payments in one online location.

3- Stay the Course

If you have set a long-term savings strategy with your advisor, it is important to stay the course, if possible. Continuing to contribute to your savings accounts and your retirement plan is critical to your long-term success. Fear can drive poor investment decisions and if you are feeling nervous about your current risk levels or cash-flows, rely on your financial advisor to determine the best way to increase your cash flow without impacting your long-term financial success.

If cash flow is not an immediate issue, this time also brings opportunities to capitalize on relatively low tax rates, interest rates and cost to buy into the market.

If you are in a position to invest, consider the following opportunities:

• ROTH Conversion Opportunities:

  This may be an excellent opportunity to convert part of your qualified Pre-Tax IRA, Pre-Tax 401(k)s or other Deferred Tax accounts to ROTH. In this scenario, you would elect a dollar amount to convert, pay the taxes on the conversion amount then the converted amount would start to grow tax-free with qualifying tax-free distributions.

• Tax Loss Harvesting:

  This activity is for individuals with assets in an after-tax account. Tax-loss harvesting is accomplished by selling an asset to capture the tax loss and re-buying a like-kind asset to stay in the market. Tax loss harvesting is a complicated process and something that your financial advisor is likely thinking about doing, but it may be worth asking the question depending on how the market continues to react to the current situation.

Money can be a stressful topic for families to talk about in normal states. A financial advisor will develop a plan to address existing economic challenges and future opportunities and can be a confidant when times are challenging. Financial advisors are more than return on investment fanatics and should be viewed as a partner in meeting long term financial goals, despite short term bumps in the road.

For more information on the important steps businesses should take during this uncertain time, visit our OneDigital Coronavirus Advisory Hub, or reach out to your local OneDigital advisory team.