Congratulations for surviving the year-long month of May! Let’s do it again in June. Hopefully, our nation will find a way to come together.
Before the coronavirus, our family of four had everything planned out. We were going to lead a simple, early-retirement lifestyle in the San Francisco Bay Area.
Our three-year-old son would attend preschool during the day while my wife and I would take care of our baby daughter. During my free-time, I would write on ONIG Financial Blog, as I have been doing since 2009, and play some tennis and softball to stay in shape.
Once our daughter turned six months old, we planned to go up to Lake Tahoe and escape for a month or two during the summer.
Once the coronavirus hit, everything changed. Not only were we robbed of our freedom due to the shelter-in-place rules, at one point, we were down over $600,000 in our equity investments alone. The sudden downturn was so swift, that I even thought about trying to find a job again to bolster our finances.
Thankfully, the stock market rebounded from its lows in March and I’m no longer thinking of going back to work. Although our family is ineligible for stimulus checks and enhanced unemployment benefits that are doing a great job to support our nation, we are at least thankful that our investments have recovered, for now.
Here are three things our family is doing to ensure that this latest crisis doesn’t destroy us. I recommend you do these three things too so that we may all potentially prosper in the end.
My wife and I did a spending audit for the entire year and identified things to cut from largest to smallest. Before the coronavirus, we had never done an extensive spending audit because we had always saved between 20% – 50% of our retirement income before spending any money.
Even in retirement, we still couldn’t quit the habit of saving. But after the coronavirus hit, our retirement portfolios declined and the income it generated were also at risk of declining.
Given the S&P 500 had corrected by 32% at one point, we decided that we would also cut our spending by 32%. So long as the economy looks dire, we will stay conservative with our spending.
We decided to list out the most expensive budget items and come up with a game plan to cut.
Conducting a spending audit will make you feel much better about your finances because it feels good to take action. You’re not just some helpless person who can’t do anything to ameliorate a bad situation. To make things more fun, try a no-spending challenge game together.
An income audit consists of identifying income sources that are most at risk. Assign each income source a letter grade for defensibility, an estimated probability of seeing a decline, and an estimate of the actual income decline.
We reviewed and updated our existing retirement income streams recently. Here are some income audit example:
After conducting an income audit, we calculated that our retirement income has the potential of declining by 20% – 30% for 3-12 months. This estimation gave us the motivation to immediately cut our expenses by ~30%. If our income doesn’t decline over the next 3-12 months, then we will have stretched our savings. If our income does decline, then we were prepared.
After analyzing all your income sources, figure out which sources can use more help. Also look for investment opportunities.
It’s important to always figure out ways to boost income and wealth. Many great businesses were created during the 2008-2009 financial crisis. I’m sure many great businesses will be created today.
To boost wealth, first start with the easiest opportunities and work your way up. If you have a day job, the easiest opportunity is to do more work and be more visible. Employers are looking to cut further and many of those jobs that have been eliminated are never coming back.
During the pandemic, I identified the following income opportunities and took action.
Hi Sam, I was just laid off today and start my new gig (with a raise) on Monday. Hard to believe I was just paid a $80K severance for a job I was planning on leaving! AND I got it during a pandemic.
I follow many of your philosophies (got my first house through a love letter, haven’t paid a broker in three real estate transactions and am a big believer in the side gig) though I am not nearly as disciplined as you. Also too nervous to leave day jobs for the side gig, even though the side gig made more money for us last year than me and my husbands day jobs combined.
Anyways, the engineered layoff was a first for me. I had bought the book for my sister a few years ago. I was excited to dust it off last month. The book was perfect. Just wanted to say thank you.
When chaos strikes, it’s easy to feel paralyzed and do nothing. The general advice is to sit tight and hang on until an eventual recovery.
Instead of doing nothing, I encourage everyone to figure out where you can cut excess spending, analyze your existing income sources, and aggressively look for new financial opportunities.
You will feel great taking action.
Many fortunes are made during times of uncertainty. As the saying goes, “never let a crisis go to waste.” Use this opportunity to change your future for the better!
During times of uncertainty, it is more important than every to stay on top of your finances. To do so, the best free tool to use is by Personal Capital. In addition to better money oversight, you can run your investments through their award-winning Investment Checkup tool to see exactly how much you are paying in fees and whether you are properly allocated based on your risk tolerance.
After you link all your accounts, use their Retirement Planning calculator. It pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms. There’s no rewind button in life. Make sure you have your finances in order.
Readers, what are some things you are doing during this latest crisis to improve your life? Have you tightened up spending? What are some specific ways in which you’re boosting your income and your income sources?