THREE EXPERTS ON HOW TO BUILD UP SOME GREEN ONCE YOU’RE OUT OF THE RED
Most of us think of a solid financial plan as having a budget, savings, a nonretirement portfolio of investments and a way to pay off your mortgage and consumer debt. But to maximize a plan’s potential, you also need to have courageous conversations.
A good first step is to assess how your finances were directly impacted by the pandemic. Then, think about what led to those changes If you have a partner and had to reduce your work hours for child-care or home-school needs, remember, those choices carry value. Earning less money than your partner should not diminish your agency over a shared future.
Once you have completed your assessment, the first conversation you need to have is with yourself. The goal is to create a clear shortand long-term view of your finances, based on what you need to release, and remix.
Start by looking at your financial goals, income,
current net worth and previous decisions you’ve made with your money, and ask yourself if you are satisfied with the outcome. If not, what do you need to do to release yourself from continuing with unwise practices? When it comes to remixing (which means changing and improving), focus your efforts on the long-term vision of what you are trying to achieve, and determine the new things you need to do to make it happen. This process will make it easier to stay on track when talking to your partner, accountants, advisors, and yes, even your employer. Many employers are increasingly flexible and supportive about work-home life balance. But remember, flexibility doesn’t (and shouldn’t) have to come with a trade-off, salary-wise.
Finally, as we approach the end of this pandemic, realize how resilient you have become, managing so much rapid change in a short period of time. Look ahead with optimism: Your plans for your finances are not cancelled. They just need to be reimagined and adjusted.
Shannon Lee Simmons On Putting the "Fun" in Emergeny Funds
In the early weeks of the pandemic, there were some people who were surprisingly calm about their finances. Calm, even though their business just closed unexpectedly, or their investments had suddenly dropped, or they had just been laid off. It’s not that they weren’t scared—they were. But they felt prepared, because they had an emergency fund—a modest stash of money in a boring liquid savings account that saved them from panic.
I’ve always said emergency accounts are like a warm blanket of calm. I freaking love them. But they’ve always been a tough sell.
They lack the sexiness of investing or the stick-to-it grit of debt repayment plans. The pandemic, however, made it clear that having one is a cornerstone of a good financial plan.
The standard thinking is that you need enough money to cover three to six months of bills and a bit of spending money for necessities.
The thing is, this can be an unrealistic goal for many, and it’s why people often give up on emergency accounts— the numbers are daunting.
It can help to think of it more like a series of steps or levels of saving you’re trying to achieve. The first and most important level is to set aside enough for six to eight weeks of living expenses. The second step is to always put a small amount away each month in addition to that.
Let’s say you require , to financially survive six weeks of life without income. Once you’ve reached that goal, you could start saving toward other things, but you must ensure you always have money going into this account. This way, the money here can also cover those expensive uh-oh moments. Uh-oh, the pipes froze.
Uh-oh, my laptop broke.
Using debt to bail yourself out of an emergency is like kicking yourself while you’re already financially down. It adds to the panic. Emergency accounts are the key to keeping calm and saving on.
Julia Chung On Thinking Outside the Box
When complex financial decisions become even harder to navigate, a great decision-making structure— one that takes into account where you are, what you know and the fact that there are some things you can’t predict—is key to moving forward. I’m a huge fan of the design thinking process, an approach used for practical and creative problem solving. There are five steps—tackle them in order, one at a time.
Not with money— with yourself. Take the time to truly understand who you are and what you value. You are a constant work in progress, as we all are. You are learning, adapting and developing. Adjust and tweak your decisions so they meet you exactly where you are right now.
What are the overall outcomes you want? This step can be incredibly tough, but go back to the information gathered at the empathizing stage, and start defining the key elements of what you want to achieve with your finances. Is retiring at a certain age a priority? Helping with your kids’ education?
Are your own values connected with these goals?
Now is the time to ask: how can my money work to support my values and goals? Maybe you want to invest for the long term or save for the short term. Maybe you want to pay down some debt, to create some cash flow to feel more secure.
You may want to work with your spouse, friends or a finance professional to get a good grasp on what ideas might work for you.
Time to test the options. Try using a debt or retirement calculator, or a budgeting or cash flow spreadsheet or app, or work with a financial planner to create thorough projections.
Now you choose the ideas that can take you where you want to be. Remember that you’re not married to them just yet—it’s still the test phase. Book some time to see how it worked so you can tweak or change things early enough that anything going sideways can be fixed.