Our Kids Will Be OK… And So Will Our Financial Plans
Since my two-and-a-half-year-old is home from school with the closures and social distancing, my wife and I decided to really ramp up the education. We are teaching him French, Mandarin, and the scientific table. It’s a lot, but 10 to 12 hours of daily rigorous study is really paying off. If only that were true…
The reality is that today we finished all five seasons of Mickey Mouse Club House for the third time. I honestly can’t tell if Eli can actually count to 20 and solve the missing piece to the shape puzzle or if he’s memorized every episode and just knows what comes next. He definitely knows the theme song — sings along while dancing…every time — so that’s something.
For a while I was worried that this critical time away from the classroom and his friends is setting Eli back. I’m not a teacher and I am clueless in the ways of early childhood education, but we are still very much committed to his learning and development. I am determined to do what I can. So, while we may not have the ability right now to develop and deliver a curriculum, we are doing what we know and what we ourselves can control.
Your Financial Plan
The same can be said for your financial plan. With one in seven Americans currently out of work due to the coronavirus pandemic, many households are forced to put their savings on hold and focus on getting through this week and this month. Families are utilizing their emergency funds and are focused on maintaining their cash flow. As such, savings to 401(k)s and Roth IRAs are currently paused. Every dollar in take home pay or emergency funding is important today. A lot of people can simply not afford to put money into retirement savings.
Naturally, people are worried about the impact that this is going to have on their financial plan. One of the cardinal rules to financial wellness is to save 10% to 20% of your paycheck towards retirement, depending on age and level of savings. A principal message that we teach in our own financial literacy classes is the concept of saving into the retirement fund before anything else, even before we pay our most important bills. In fact, that retirement fund is the most important bill of all.
What happens to the long-term financial plan when current conditions force families to focus solely on the short-term? It is a very real prospect that the current economic conditions will stand in the way of people’s ability to save for the next year or two. But by doing so, are they putting their long-term goals at risk? The answer is very simple: No.
While saving for the long-term is a key piece of a good financial plan, we know that a short-term disruption does not impact the plan in a significant way. The key to mitigating any negative consequences to hitting the pause button on the saving is to focus on what you can control. Practice sound budgeting, keep the balance on the credit card to a minimum, and make sure that your financial household is organized. Take the time now to review your accounts and consolidate as needed. A few things that you can do right now include:
- Do you have an old 401(k) out there from a previous job? Roll it into your IRA.
- What fees are you paying in your checking and savings account?
- Check in on your current retirement assets and make sure that your asset allocation is appropriate and that the funds you are investing in are low-cost.
- Review your monthly and annual recurring charges. I guarantee that you are paying for something that you are not using (e.g., coffee subscription, streaming service, music subscriptions).
- Renegotiate your cable and internet service package.
It is not theoretical. We see it all the time in our world. Life events affect a client’s ability to save for a year, two years, or longer. Not only do we see the success in the financial models that we run using software and algorithms, we see it played out time and again with clients who have gone through it, and their long-term plans are still successful. My family and I have experienced this ourselves. On the surface it looks as though the short-term disruption will derail the plan, but here’s the thing… we have already planned for something like this. That’s why we have a financial plan in the first place.
The most important thing to take away here is knowing that the long-term is just that, long-term. Short-term disruptions are unpleasant, but every person and every plan will experience several along the way. Keep these thoughts in mind:
- If it seems like everyone else is thriving (teaching their two-and-a-half-year-olds French, Mandarin, and the periodic table, on their own) then you are over thinking. Everyone is adjusting right now.
- You have time to save. You may not be able to save as much as the plan calls for at this moment, but that does not mean that your plan is going to get off track.
- A good financial plan has already accounted for what is happening today.
Just as we have plans for our children that should not be affected by a little time spent away from the classroom, our own financial plans will not be affected by a short pause in savings.
Mickey and the gang are doing just fine right now, and our children are going to be OK. The same holds true for your financial plan.