“Someone is sitting in the shade today because someone planted a tree a long time ago.” – WARREN BUFFET.   I’m going to take this quote as a metaphor of our finances and the shade represents the ability to crisis-proof your finances.  The time to prepare for a crisis is not when you are in a crisis but before. The nature of the financial market is that it’s cyclical – good financial time and not so good times.  

A financial crisis can be triggered by so many factors for example in 2008, the mortgage crisis, and recently in 2020 a health crisis, Covid-19, triggered an economic crisis. What if you can eliminate some stress by taking on these seven steps? It doesn’t mean you will be immune to a financial crisis but it sure would make it easier.  Don’t be hard on yourself about your financial fears or things you could have done before today to put you in a better position to weather any crisis.

“FORGIVE YOURSELF FOR NOT KNOWING WHAT YOU DIDN’T KNOW BEFORE YOU LEARNED IT.”

MAYA ANGELOU

1. Boost Your Emergency Fund

You should aim to have 3-6 months of your monthly expenses saved up preferably in a High-Yield Savings account. Having an emergency fund (cash reserves) makes it easier to avoid tapping your retirement fund or racking up debt. Do this for both your home and your business. Keep in mind that your emergency fund should be used only in a true emergency such as paying medical bills, when you lose your job, unexpected car trouble…

2. Increase Your Retirement Fund Contributions

It may not seem like it, but now is a good time to invest in the stock market.  The market is cyclical and will eventually recover. We saw this during the 2008 crisis. Take advantage to get in while stock prices are at their lowest. Remember when it comes to investments, you are playing the long-game, and don’t forget to diversify. Aim to have 10-15% of your take-home pay (after taxes) dedicated to investing and your retirement. Keep in mind baby steps count, so if you can only do 5% this year just start and aim to increase that percentage every year or even sooner.  Your retirement plan should take into account timelines, ages, and risk tolerance.

3.Revamp Your Spending Plan aka BUDGET

Most people usually know how much money they have coming in but it can be a shock to see where your money goes. John Maxwell said it well, “ A budget is telling your money where to go instead of wondering where it went.” Don’t like the word “budget”? Think budget is a six-letter curse word for #yolo, then just call it a spending plan.  At this time review your spending and either pause some spending for a time or cut any unnecessary costs. Start tracking your expenses if you don’t already. You should know what every dollar is doing (going to do). Every dollar has a job. Take your bank and/or credit card statements from the previous month and review them line by line.  Are there expenses you forgot or don’t even know about e.g. the subscription service that you don’t use but forgot you still pay for.  Watch out for excessive online shopping. We all need some retail therapy from time to time but as you navigate working from home with extra time on your hands to browse the internet, that is one thing to be mindful about.

“A BUDGET IS TELLING YOUR MONEY WHERE TO GO INSTEAD OF WONDERING WHERE IT WENT.”

–JOHN MAXWELL

4. Live BELOW Your Means

You may have heard of “live WITHIN your means” where your expenses do not exceed your income but challenge yourself further to make sure you have money left over at the end of the month by living well below your means. Just because you can buy something does not mean that you should.  You can start by cutting back in every category for $5 and increase the number every month until you get your sweet spot of living below your means. Your goal is to stay Cash Flow Positive. What is coming in is more than what is going out.

If you are in a two-income family, see how close you can get to living off only one spouse’s income and save/invest the other income. 

5. Work on Aggressively Paying off Your Debt

Using the Debt Snowball or Debt Avalanche approach double down on paying off done debt at a time while maintaining minimum payments to the others. This will free up money you can use towards your long-term goals sooner rather than later. 13 % of American’s aren’t saving more because of the amount of debt that they owe. Your goal should be to eliminate high-interest debt such as credit cards. Debt gives you less breathing room in your budget as you have more obligations to cover.

6. Insurance Coverage

Insurance is all about hedging risk. Review your situation and ask yourself do you have adequate car insurance? If a renter, do you have renters insurance? For homeowners, do you have insurance on your house/condo/townhouse? What about life insurance? Most important (in my opinion), make sure you get medical insurance.  

7. Don’t Keep Checking Investments Balances. Diversify Your Portfolio.

When the market is on a free-fall, most people tend to panic and start selling their investments. This is not the right time to do that. If you are younger and time is still on your side, you should just let them sit.  The market always comes back. Depending on your age (time in relation to retirement age) you can engage in more aggressive investments. Make sure you have a diversified portfolio where not all your investments are in a single stock. Add in some mutual funds if you didn’t have them already. By their very nature, mutual funds are diversified. Meet with a financial advisor to serve as a second set of eyes on your investment (retirement strategy).

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Additional Reading: 7 ACTION STEPS TO TAKE DURING FINANCIAL HARDSHIP