Building Resilience Through Financial Planning
It's hard not to feel the cloud of tension that hangs over the DMV (DC, Maryland, Virginia) as federal workers and federal government contractors wake up every morning wondering how they, their spouse, a friend or other loved one might be impacted by federal layoffs or contract terminations. Even those whose jobs are secure might be forced back to an office and a commute that no longer works for the family schedule, that was developed during years of working from home, forcing a tough decision on what to do next. Uncertainty and wondering what to do next can be stressful. It's in these times that your financial plan can provide clarity and confidence.
Finding Clarity
By reassessing your current position, priorities, and contingencies, you gain a clearer picture of what you can actually control.
Emergency Reserves: An emergency fund is crucial during job uncertainty because it acts as a financial safety net to provide stability and peace of mind and buys you time to find your next job that aligns with your skills, experience, and long-term career goals. An emergency fund does not necessarily mean cash in the bank, non-retirement investment accounts or ROTH IRAs can also be a good source of funds to replace lost income during a job search.
Review Spending: Most of us have areas where we can scale back spending. When income is good, you may not have motivation to review your expenses to see where cuts can be made but now may be a good time to jump in and if there is anything extra that doesn't fit with your goals. You won't truly know what your potential income deficit is until you review your spending. Perhaps, after your review you will notice there is no deficit or it's not as bad as you had built up in your head.
Insurance Coverage: In some instances, the loss of benefit and health insurance are more concerning than the loss of income. Reviewing your health insurance options, including the cost of insurance under a spouse's employer or private coverage through one of the exchanges, can help relieve fears about reduced coverage and higher premiums.
Update/Review Projections: Ultimately most of us work and earn money to help us achieve future goals. When you have changes to your circumstances it’s important to check-in on your progress towards your goals. Knowing where you are in your pursuit can help put things in perspective and can help you make important decisions about your future. For example: over the last few weeks we have met with numerous clients to look at how "worst case scenarios" would impact their retirement. In most instances, they were relieved to see the impact was not as detrimental as they had feared.
Planning for What's Next
For those just starting out, or those who are mid-career, your biggest asset is your future earning potential. Having an emergency fund or plan for how you will bridge the financial gap during a job search is important because it gives you the time to find a job/career path that ideally fits your passions, skills and puts you on a financial and career track for the future. Knowing what you want your personal/work lifestyle to be and knowing what you need financially are critical to being confident in your future decisions.
Conclusion: Focus on What you Can Control
Unfortunately, you likely cannot control whether you lose your job, or your company loses contracts, but you can prepare for it if that does happen.
During uncertain times people tend to immediately focus on their investment portfolios because it's emotionally safer than being introspective about your current financial status and your future goals and aspirations. However, you also can't control what happens to investment markets. What typically happens with investment portfolios during periods of an economic downturn and uncertainty is some short-term pain that sets the stage for the next bull market. Trying to time the stock market is rarely a rewarding strategy.
If you are feeling stressed about the future and want to take control of your future - your first step should be to create or check-in on your financial plan.