Without a doubt, the COVID-19 pandemic has plunged us into uncertain times; the economy taking a hit is proof enough. This pandemic is probably not the first “time of turmoil” you have encountered as an entrepreneur, and it certainly wouldn’t be the last. How can you prepare for such periods of uncertainty? Here are seven ways to manage your money correctly in times like this.
A business owner should have multiple investments aside from their primary source of income. If you don’t have one yet, you can take advantage of the lower stock prices right now.
As the saying goes, don’t put all your eggs in one basket. When it comes to investing, diversity is an advantage. Various asset classes react differently to events, so it is only logical to invest in a combination of stocks. This way, even if some stocks fail, chances are that others would stay strong, and you don’t lose everything. Diversity in investments also includes different kinds of assets, such as bonds, shares, and commodities. There are instances of region-specific economic threats, like the 2016 Brexit, so location is also important to keep in mind.
Another simple way to manage risk during times of uncertainty is to invest small sums at regular intervals. You might hear stock players who wait for the right market conditions before making a considerable investment commitment. While that certainly sounds strategic, it dances dangerously close to gambling, especially during times like this. Remember, slow and steady is the key.
2. Seek financial advice
When markets are volatile, you need an expert to help you choose a safe path. Seek help from a financial adviser regarding your short-term and long-term plans. A financial adviser can also assist you in investment, emergency funds, budgeting, and savings.
Another function of a financial adviser is to be your sounding board when it comes to your attitude on risks. Understanding the risk levels of your investments is critical even when the market is stable, and their importance is magnified during periods of uncertainty.
They also have great insight into investment-safe areas and rebalancing, which you could benefit from.
3. Have an emergency fund/cash buffer
If you still haven’t built emergency funds for both your family and your business. Emergency funds are exactly what the name suggests–money you set aside for unprecedented hard times.
The thing about emergencies is that you never know when they will hit and how hard they will hit you. So the more you have set aside, the better prepared you will be with whatever life throws at you.
As a general rule of thumb, emergency funds should be able to cover three to six months of your regular expenses. But don’t be afraid to go beyond that.
What happens when you are caught in a disaster (such as right now) and don’t have emergency funds? The first thing you need to remember is that you don’t have to beat yourself up over it. You can’t change what’s already happened. All you can do now is focus on what you have at hand and what you can control. Sometimes this would mean drastic cuts in your spending to save up as much as you can. Rely on credit cards as a last resort.
4. Review your current budget
Now more than ever is the right time to know where your money is going. Review your current expenses and see if you can make cuts for more prudent and efficient spending.
Budgeting can bring feelings of scarcity to most people, but a change in mindset can help get rid of those feelings. Being intentional with your spending leaves more room for the things that truly matter. Now is the time to change your spending habits by letting go of non-essentials. At the very least, stop overspending on things that don’t add value to your life or your business.
Tracking your expenses and being mindful of your cash flow are excellent exercises that help you make wiser spending choices. Moreover, understanding your spending triggers can help you identify what changes and actions you need to take to help you manage your habits.
5. Have an emergency and estate plan
It may sound morbid, but preparing for the worst-case scenarios you can think of ensures you are never caught off-guard. Regardless of whether there’s an impending disaster or a flourishing market status, planning ensures that your hard work goes to those you have reserved it for.
This planning is especially crucial for entrepreneurs with a family to take care of. When you are building a future for someone, you want to make sure they get it even when you’re no longer around. Here are some actual emergency and estate plans you should consider:
- Life insurance
Make sure that your insurance policy has enough coverage, and your beneficiary knows what it’s meant to cover.
- Long-term disability insurance
Workplace injury, accidents or health issues can cause long-term disability. If you can’t fend for yourself or your loved ones, this helps cover that for you.
- Updated will or trust
If you want a say on where your assets go when you’re gone, it is essential to have an updated will. The larger your estate, family, or business, the more critical it becomes to have an estate attorney to enact your will or trust accurately.
- Family emergency binder
This binder organizes all the necessary information to make things easy for you to access day-to-day and for your family to handle situations without you.
6. Brace yourself for changes and embrace them
Like all the other crises before this one, this too shall come to pass. Periods of uncertainty are tough, but they do not last forever. However, some things will have to change to adapt better and be more prepared in the future.
Brace yourself for change as we begin this “new normal” and be ready to implement those changes to your business. It is futile to hold on to a system that you know wouldn’t work. The best way to overcome a crisis like the COVID-19 pandemic is to adapt.
Take all the learnings you’ve picked up about handling your finances. Be ready to develop new spending habits and update your plans to accommodate your financial goals. Set up an emergency fund if you don’t have one, and replenish your stock after this.
7. Your emotions matter
Your emotions subconsciously dictate and influence our decisions, including your spending. It is crucial to have a healthy mindset regarding matters of finance and keep that mindset in check during turbulent times. It might seem cheesy to include feelings in tips on how to handle money properly, but the truth is, emotions do matter.
Difficult times might make your emotions unstable, which could lead to unwise spending decisions. Money matters are always closely related to feelings of shame. It is essential to acknowledge these feelings to catch yourself on emotionally-driven rash decisions.
If you have questions about how this applies to your business, feel free to get in touch with Annette & Co.!