One of my most important rules for financial planning is never have to be selling equities to meet income needs. You never want to put yourself in a situation where you need to sell when the markets are down, like now. That turns a paper loss into a realized loss and the ripple effects can be devastating for your financial health.
However, no matter how well you plan your cash flow, a Black Swan event, like what we are currently experiencing from the Covid-19 pandemic, is potentially going to throw a monkey wrench into your plans. Your normally trustworthy income sources, such as your work or income from investments, are potentially going to be negatively affected.
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So how do you pivot and deal with an unexpected negative hit to your income?
First place to start is to look at your expenses. If you can offset a hit to your income by reducing costs, you can improve the bottom line. Here are some places to look at to reduce costs:
If you rent either your home or you are a business owner that rents space, contact your landlord to see if they will work out deferred or reduced rent. Most will ask you to document the need, but as this is often someone’s largest expense outside of taxes, this is an important area to look at finding cost savings.
Another place I would look at is insurance. Most insurance is priced off of activity, and if that activity has decreased, update your insurance to drop the premium. If you own a business and your revenue has dropped or you have had to reduce payroll, report that to your insurer and have them adjust the premium.
If you are sheltering at home, update your auto insurance to the minimum mileage. In fact, probably not a bad idea to review all your policies, business and personal, to see where you can make appropriate adjustments. Some really good insurance agents I know are actually reaching out to their clients, both business and personal, to proactively help them find savings, despite the reality that it may hurt their income.
If you purchase health insurance through an exchange, update your income and you may qualify for a subsidy or an increased subsidy. If you get your insurance through work, some insurers are allowing employees to change to their plan to reduce the premium.
Next look at what you can do to modify your debt. I am seeing real estate lenders willing to modify mortgages, both home and commercial, to help out. They may be willing to defer payments or allow you to pay interest only to help you bridge the gap.
Credit cards may also be willing to defer payments and/or waive interest temporarily, and not report it to the credit bureaus. Student loans also are waiving interest and deferring payments, but make sure you reach out to them. It makes a difference if your loan is government funded or private.
Larry Steinberg is a financial adviser with Financial Architects in Pasadena, CA. He is a registered representative of Cabin Securities, member FINRA and SIPC and an Investment Advisory Representative of Claraphi Advisory Network, LLC, (“Claraphi”) an SEC-Registered Investment Adviser. Claraphi is not affiliated with Financial Architects or Cabin Securities.