Financial Planning Lessons From the Pandemic

Financial Lessons From the Pandemic

This week’s reader question is about financial planning priorities:

What are the most pressing financial planning themes we need to be thinking about coming out of the pandemic?

I often joke that it’s my job as a financial planner to poke holes in a client’s financial plan. I want to ensure that it can withstand the absolute worst-case scenario. Well, for some clients, 2020 was just that. The pandemic uncovered opportunities to strengthen financial plans while highlighting unhealthy financial habits. Here are a few common themes and financial lessons I worked on with my clients that can help as we emerge from the economic shutdown:

Savings Can Save You. The pandemic took the world by surprise. Many people saw their incomes suddenly dry up. Some were forced to survive on credit. The experience proved that a fully funded emergency savings account is essential. I recommend that clients keep a minimum of three to six months’ worth of living expenses in a cash account for unexpected circumstances. I know you won’t earn much, if any, interest on these savings, but that’s not the goal—that money is there to provide a cushion when the unexpected becomes reality.

Ensure You Are Insured. We always hope we’ll never need it, but it is absolutely essential to have proper health, disability and life insurance coverage. I am currently working with a few individuals who are unable to fully return to work because of COVID-19 long haul symptoms. Having insurance in place has allowed them to avoid the devastating effects a health crisis can have on one’s financial plan. Insurance policies allow you to focus on personal recovery rather than financial survival.

Prioritize Expenses. During the pandemic, we saw two opposing cash-flow scenarios occur at once. On one hand, job losses forced people to cut costs to make ends meet. On the other, stay-at-home orders eliminated everyday expenses like commuting costs, dry cleaning, lattes and lunch meetings. Life in lockdown separated the truly essential expenses from the nice-to-haves. The key takeaway here is to evaluate your spending and your budget regularly, decide what’s really important to you and keep debt to a minimum.

Diversify Investments. Market volatility at the start of the pandemic reinforced the old adage: “Don’t put all your eggs in one basket.” Not all market or business sectors respond the same way during a downturn. For example, the hospitality and travel industries were particularly hard-hit during the shutdown, while many tech and consumer staples companies came out ahead. As our clients know, diversifying investments across asset classes acts as a buffer against many risks.

In the end, I think that these lessons have a consistent theme: They’re all about managing and mitigating risk. Everyone has a different risk tolerance, but all of us need to be adequately prepared for the next unexpected event.

If you’re unsure about your own financial plan, I’d suggest setting up a meeting with your adviser or financial planner. This will help you ensure you are taking the appropriate steps to meet your financial goals while preparing for the unexpected.


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