Four Financial Moves NOT to Make During Coronavirus
Health officials have been telling us all the things to do during this coronavirus outbreak: wash hands thoroughly while singing happy birthday; stay inside; keep a social distance of at least 6 feet from other people; and only leave home for essentials.
Everyone at the Financial Gym hopes you’re staying healthy, but we’re also hoping you can use this time to get your finances in shape! So during this pandemic, instead of telling you what to do, we’re going to tell you what not to do with your money.
Don’t…
Roll over your 401k or 403b
If you’ve checked your retirement balances at all in the last month, you’ve probably noticed a pretty precipitous drop, unless your balance has been sitting in cash, which has maintained its value. (Now, on a side note, if your retirement money is in cash, you should take advantage of the opportunity to buy into the market right now. If retirement is more than 10 years away, aim for an asset allocation of 90% stocks and 10% bonds.) If you got laid off, quit your job, or know that you have 401ks or 403bs laying around somewhere from an old job, we normally recommend that you roll these into a corresponding traditional or Roth IRA, but right now might not be the best time to make this move. Depending on where you are rolling the account over to, you may be forced to sell out of your current holdings, wait for a check, deposit that money into the new IRA, and then reinvest it. This process can take days or even weeks, which means if you sell your current holdings, which are down in value, and the market begins to recover while you are waiting for your check, you are missing out on growth that you otherwise would have earned if you had left your retirement account where it was! In order to avoid this, we recommend staying put for now, unless you are 100% sure that the rollover will be done as a transfer of assets and not a liquidation of assets.
Sell your investments in a panic.
Everyone has heard, “Buy low, sell high,” yet when the market tanks, people still get very tempted to hop off the rollercoaster ride of investing. In real life, if you tried to get off a rollercoaster mid-ride, you’d probably get injured and put a lot of other people at risk. In the investing life, if you try to get off the ride as you’re heading towards the bottom, you’re missing out on what happens next: the climb back to the top!
Aggressively pay down debt if you don’t have an emergency fund.
When you’re paying down credit cards or student loans or any other type of debt, it can seem really appealing to throw all of your extra money towards it in order to GET. IT. GONE. But those extra dollars are better suited going towards your emergency fund - and not just during a pandemic. Why? Here’s a scenario. Susie Q has $24,300 in credit card debt. Her minimum payments towards her cards add up to $700 per month. She doesn’t have a good credit score, so she can’t do a balance transfer or a personal loan. After all her bills are accounted for, she decides to put an extra $500 per month towards the cards while saving $0. One day, Susie Q loses her job. She has no savings, but now her debt is down to $17,200. I’m sure you can see what happens next: she goes right back into more credit card debt to pay bills because she has no cash! Had she just saved that extra $500 (or at least some of it), she would’ve had some cash in the bank and could have continued to not only pay her bills, but also not go into further debt! Prioritize saving everyday, so that when a pandemic hits, your savings will pay for your priorities.
Make a major money decision.
There are several major decisions that you should consider putting off while there is still uncertainty surrounding coronavirus’ impact on the economy. Some of these include buying a home, making a career change, quitting your job, or committing to a new lease or auto loan. Additionally, now is not the time to throw all of your free cash into the stock market if you don’t have enough saved up already to last you for at least 6 months if you were to lose your job, or if you need that money in the next year or two to pay for some expensive goals you anticipate once this recession is over.
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