52 – Take Control of Your Personal Finances in Times of Financial Crisis

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Episode Overview:

We made it. One whole year of hacking your net worth. On this anniversary, Ken decides it’s time refocus – zeroing in on the people he wants to help the most. Are you one of them? Listen and find out. We are in the midst of an unprecedented financial crisis. Ken has weathered his share of crisis, both personal and external, and wants to share with you what he’s learned, and what can be done. Listen in as he discusses 3 key principles of crisis management.

Transcriptions are auto-generated, please excuse grammar/spelling!

Happy day to you. This is Ken Kaufman and I’m thrilled you’re here for Episode 52: Take Control of Your Personal Finances in Time of Crisis.

Now, before I jump into that subject, I need to just pause and pull back for just a second. This is Episode 52. This represents one full year of podcasting, my very first year of podcasting. I need to reset after this first year because, when I started, I knew that I just had something to say. I wanted to get it out there and I just started in this process. After one year, I’ve had a chance to now step back and decide who really is it that I want to talk to, who is it that I really feel like can benefit from the message that I’m bringing. You may have noticed that, at the beginning, and you’ll notice at the end that I have a new intro and a new outro that is introducing this concept. I want to focus on helping those who are personal financing, investing, do-it-yourselfers, trying to figure out how to do these things on your own by doing your own research. I want to bring you content, bring you information both from me and my own research as well as from the many others who are also trying to serve this market and become a resource to you to succeed in building a financial plan in handling your investments and in everything that goes into succeeding with money, with building financial independence and financial freedom for yourself and for your family.

With that as a reset, I appreciate if you know of anybody who you think fits into that category that could benefit from the content, please share this podcast with them and I’m going to be getting more and more diligent and more and more focused at serving you.

Now, back to the topic today, Take Control of Your Personal Finances in Time of Crisis. Yeah, we’re in a time of crisis today. Absolutely. COVID-19 is dominating every news headline and it seems to dominate every conversation with family and friends and coworkers. I am going to share some principles that I think will apply to all kinds of crises, not just the challenges that we’re facing today.

I have had a few times in my life when I’ve been through a pretty significant crisis, whether it was driven by external forces or it was just all around a problem or an issue that happened to me personally, meaning nobody else in the world would have felt in a time of crisis. It was something that was unique to me and something that I was going through. I would say I feel like I’m an expert in terms of all my experience with going through a crisis, but I do feel like I have some perspective to share. I think those that I know who were born before the depression and went through that and have memories of that, I actually love the perspective they bring to the table especially from a financial perspective that I think we can learn from them and some of my own experiences that really have me focused on three main categories, three main principles to apply to taking control of your personal finances in time of crises.

The first one is overcoming fear and anxiety so that you can be present, the second one is triage like a pro, and the third one is never be lulled into a false sense of security again. Now, I’ll just take a little bit of time on each one of these three points and then we’ll wrap up.

Overcoming fear and anxiety by being present. Fear and anxiety are emotions that we feel inside of us that have to do with something that we think may happen in the future. We fear or we have anxiety xxx potentially happen in the future. It’s actually not happening to you today. And so the way to overcome this is to focus on your progress each day and express gratitude and recognize that you are moving forward, maybe just surviving the crisis another day is all you need to get yourself back present to realize, “Hey, you’re moving forward and you’re being successful.” You really cannot get caught up in the thinking of where you think you should be. You need to focus on the progress that you’ve made and express gratitude. The other things that can really help with this—eat healthy, get exercise, spend quality time with loved ones. For those who are religious who believe in a higher power, connect with God. Draw closer to him or whatever your representation of that is.

I can tell you that, in going through this crisis and the business that I’m helping to run, we are dealing with a lot right now. When I came home, I went for a 30-minute walk just around my neighborhood. I wasn’t focused on lifting heavy weights or anything. I just wanted to get out there and walk, and I felt so good and it brought me present. The first thing with this crisis, because the news, media, and all these things, they seem to draw us into being afraid and getting anxious about what may or may not happen in the future. The reality is it doesn’t matter. We need to be in the present and focus on being in the present. As we do that, it actually helps us become far more empowered to deal with, to cope with, and to succeed with the things that are going to hit us in the future related to that crisis or any other challenge.

The second point here is to triage like a pro. So I started to think through for those who might be listening that have lost a job or maybe your hours have been reduced significantly or you’ve just been asked to take a pay cut, which I know there are a lot of companies that are struggling with this right now or, I should say, that are implementing some of these types of things. Here are some triage opportunities I think that are in front of you. The first one is, if you have a credit card that you’re trying to make payments on or you’re afraid of falling behind on, or a loan, whether it be your mortgage, or student loans, or anything like that where your income is going down and you think there may be a challenge, this is the time to get on the phone and start making phone calls to those providers and asking them to defer your payments maybe for a month or two or three to give you some cushion so you can build up some cash reserve and start to get yourself ahead financially. If you need time to find another job or to start up a side hustle because you have lost your job and now you want to go down a different road or perhaps, in your particular area, you don’t have a lot of other opportunities to find employment. I’m encouraging you to take a run at that.

If you’re still employed and can show all the things related to getting refinanced, interest rates have been coming down. The fed just lowered rates to a ridiculously low rate. That’s going to be reflected in mortgage rates here for a little while. You may want to make a call to whoever it is that you use for your mortgages and check in and see if maybe you can do a refinance and draw that payment down.

Another place where you can take a hard look in terms of triaging like a pro is, as you get ready to file your taxes, the IRS has just barely come out. As a way of trying to help those who are struggling financially through this difficult time, they have deferred the need to make your 2019 final tax payment until July 15th of 2020. That’s a three-month deferral. Now, that doesn’t change when you have to file your return. Personal returns are still doing April 15th but you can defer. If you owe any money for the year 2019, that can now be pushed out three more months to July 15th.

So these are us a couple of things. Oh, and if you did lose a job, there are often benefits like unemployment or other programs that your employer might offer in terms of them helping you to find a new job or helping in any number of ways that employers generally try to do to try to soften the blow with their employees as well as government benefits that you may be eligible for and can help you to triage through a short-term deficit in cash flow. So those are just a few ideas but triaging like a pro means you’re looking for where are the constraints in your financial systems and where is your cash flow going to struggle if this crisis is hurting you from a financial perspective, and you jump in, and you tackle them. But you have to be present first. Because if you approach these things with fear and anxiety, they will eat you alive and you will not be sleeping. You will be stressed out. Get present and then you can take these things on and think clearly.

The third is never again be lulled into a false sense of security, and this is what I mean by that. First of all, we’ve seen what’s happened with the panic of buying up the toilet paper, and Clorox wipes, and all of these different things that were flying off the shelves and starting to cause huge constraints in the entire supply chain of all of the goods that we buy at grocery stores and at supermarkets. The big lesson to learn here is, once we get out of the crisis, put a little plan together to build up your own reserve so that you don’t have to panic, and run, and then all of a sudden have insiders checking at different stores and, as soon as they have something available that you want, they’re calling you so you can sprint away from work and go and hurry up and buy it because you’re completely out. You have a reserve. You have some food. You have some other supplies and things that will be important just for you to sustain life if you had to shut yourself in a house for, say, 14 days like those who are quarantining themselves who have received positive diagnosis for this corona virus.

Really important to build up that reserve. May not be able to do it now financially but put it on your list, make it part of your financial plan, and don’t ever give up on it. Don’t ever say, hey, I don’t need that anymore. You can’t be lulled into a false sense of security. Once you’ve tasted the pain of a crisis and if it’s a deep enough pain, you will never forget just like the people I know who lived through the great depression. They don’t waste an ounce of food. They don’t waste anything. Everything needs to be utilized for some benefit. We hopefully will gain some of that perspective and keep it for the rest of our lives.

Another place of being lulled into a false sense of security is with our investments, and I’m going to wrap up on this point. We have had a run like almost none other in the stock market. Yes, it’s down. I think we’re down about a third. When this podcast comes out, it might be up or down a little bit from there. The market is down from its high point in about the middle of February, and it’s down pretty significantly. We’ve had tremendous gains for a very long period of time with no bear market. Sometimes these corrections are actually healthy, but I’m not going to get into that.

Here is the challenge. If you’re freaking out right now about your investments, if you’re thinking about selling them because they’ve gone down too much, we have to go back to the main principles of successfully investing and not being lulled in this false sense of security. The first one is you have to determine your asset allocation which determines how much stock and how bond you have or, in essence, how much risk you’re willing to take from an exposure in equities versus fixed income because fixed income plays defense in the portfolio and it tends to hold its value or even go up a little bit when equities are going down. Not always but that generally tends to be the case.

Next, you have to figure out what is your asset class going to be. Your asset class is going to be within your asset allocation strategy, so what types of bonds and bond funds or bond ETFs are you buying and what types of stock, stock funds, and ETFs are you buying. Then you have to get into the diversification game, which says, “Are you going to own just one stock or are you going to won multiple stocks? Are you going to own a mutual fund or an ETF that has lots of different stocks within the asset classes as well as how much is going to be U.S.-based versus international-based?” All of this exist to help you expose yourself to the type of risk, which thinking about the last couple of weeks or the last month here, it’s about how much of a loss are you willing to take without freaking out and needing to sell when the market is so low.

As you think through that, all your strategies designed for that and then the last component of how you’re thinking about mitigating risk with your investment is time. How much time do you have until you actually need this money? If you don’t need the money for 10 or 20 years, if you go back and look at the history of the stock market, over a 50-year period, it’s never generated a negative return. And so, if you know, “Hey, I don’t need this money for 15 years, you can expose yourself to more equities or more risky asset classes. When I say risky, what I really mean is just volatility with potential for higher return but some more volatility, higher standard deviations in terms of how volatility and risk is measured with equities.

Time is really this last component that everybody forgets and they think, “Oh, wow, the market’s going up. I’m going to take my emergency fund, and I’m going to invest it in the stock market.” Well, guess what. There could be a 30%, 40% drawdown on that and it could stay down for a couple of years. If you needed that money, you’re going to end up having to sell at a significant loss. So, we cannot be lulled into a false sense of security around the amount of time we are going to need or we are willing to have these funds invested before we take them out. I fear that the really strong market that we’ve had for over a decade has lulled a lot into this false sense of security and now there’s a lot of fear and concern about how much it’s gone done because I need that money soon. I needed it for school. I need it for a wedding. I need it for whatever it is—down payment on a house—and I had heard the stock market gets really high returns, so I put it in an S&P 500 fund or I heard Amazon was going to go up. Whatever the investment was, that doesn’t matter now it’s not relevant. It’s being lulled into a false sense of security about how much time you need to be thinking about when you are making your investment decisions.

Now, of course everybody is saying, “Well, the market is down so now is the time to put more money in,” but again you’d only do that with money that you want to be invested for the long-term, for a long period of time if you’re going to expose yourself to a lot of equities and to a lot of what we call potential risk, which means that highly volatile can go up and down and can stay down for a decade potentially just to be ready for that.

Now, here is the last bonus thought. When it comes to crisis, when it comes to taking control of our personal finances during a time of crisis, if you do it right, if you overcome the fear and anxiety by making yourself present, if you triage like a pro and then if you do not allow yourself to ever again be lulled into a false sense of security, you’re going to become stronger, better, more resilient, more of who you want to be and who you were designed to be if you leverage this unique, possibly once-in-a-lifetime crucible of crisis into a laboratory of learning and personal development.

So there it is. Many, many thanks to you for joining today. This is a wrap for Episode 52. It’s now been one year. Happy day.

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About the Podcast

Join Chief Financial Officer Ken Kaufman as he helps you track and hack your net worth. For those seeking financial independence, your net worth is one of the most significant measurements of success. Using his two decades of financial experience, Ken Kaufman helps you overcome your financial obstacles and look onward towards a better, brighter financial future.

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