The COVID-19 pandemic has wreaked havoc on the global economy as measures such as social distancing and stay-at-home orders have been taken in order to slow the spread of the virus. Those measures have created challenges, disrupted schedules and forced everyone to adapt to a new normal. While these challenges are real, they have presented an opportunity to help us slow the pace of our busy lives and allocate time to focus on personal financial planning.
To quote Benjamin Franklin: “If you fail to plan, you are planning to fail!”
With that in mind, here are five planning pointers to consider during this pandemic:
1. Mortgage Refinance: With interest rates hitting historical lows, there’s a good chance that refinancing your mortgage can meaningfully reduce your monthly payment. If your interest rate is above 4%, it would be smart to contact a mortgage professional to run the numbers to see if a refinance makes sense for you.
2. Life Insurance: Avoid a compound tragedy. Unfortunately, we’ve seen too many members of our community succumb to this terrible virus. It’s not uncommon to see communities raising money for the surviving family. It is incumbent upon anyone who has loved ones relying on them to make sure that their family is protected with life insurance, providing them with the funds they’ll need at exactly the time they’ll need them the most. Insurance companies are still issuing policies even during the pandemic. This can, in most cases, be done completely online and without a paramedical exam. If you haven’t made this a priority yet, now is the time.
3. Bolster Your Emergency Fund: Conventional wisdom suggests one maintain three to six months of living expenses in cash or cash equivalents. Given the current situation, many would, understandably, prefer to have six to 12 months of expenses covered. For those still working, now is the time to make sure that your emergency fund is replenished.
4. Portfolio Rebalancing & Tax Loss Harvesting: With the extreme volatility the equity markets have experienced, it’s normal to feel uneasy. With the understanding that investing carries risk, that dislocation may present an opportunity to rebalance one’s portfolio, selling assets that have performed well and using the proceeds to buy other assets that may be undervalued. In addition, there may be an opportunity to utilize a tax loss harvesting strategy that allows one to sell securities at a loss to offset capital gains of other securities. If one doesn’t have any capital gains to offset, the realized losses can generally be used to reduce up to $3,000 of ordinary income. Contact your financial advisor or tax professional to see if this strategy makes sense for you.
5. Draft/Review Your Estate-Planning Documents: The will, power of attorney and healthcare proxy are critical to ensure that your loved ones are taken care of in the event tragedy strikes. If you’ve already drafted and executed these legal documents but haven’t reviewed/updated them in over a decade, make sure to do so.
The coronavirus pandemic has certainly created a challenging and overwhelming time. However, with crisis comes opportunity. Let’s use this time to get our financial households in order and protect the ones we love.
For educational purposes only. Not to be relied upon as financial, tax or legal advice. Please consult the author or another qualified professional regarding your individual circumstances.
Michael Cooper is a Certified Financial Planner® at Borger Financial Services, based in New York, New York, and Teaneck, New Jersey. He provides comprehensive financial guidance for individuals and families and can be contacted at [email protected]