July 10, 2020
Anybody with teenagers at home in the last decade or so, like myself, has seen their share of TV shows or movies depicting some sort of zombie apocalypse. The Walking Dead was a big hit with my girls for years, as gruesome as it was. But then a 100-year pandemic hits and we begin to re-consider the possibilities of what can go wrong. For a while during the so-called “lock-down”, there were times when the empty streets around my office seemed desolate, very depressing, almost like a horror movie. During the COVID-19 pandemic, we’ve been hearing often from the CDC (Center for Disease Control) and getting tips about how to socially distance, wear a mask and wash our hands. What you may not know is that in 2011, the CDC actually published an article on their website called, “Preparedness 101: Zombie Apocalypse.”
Now, it seems that some of us may not agree with everything we hear from the CDC or how their medical experts have responded to COVID-19, but the tongue-in-cheek posting of the zombie article wasn’t meant to confirm the existence of zombies. Or at least I hope not. My goal here is to throw out a humorous attempt to remind us to be ready for natural disasters. To prepare for the unknown. Some general preparedness-like things include having extra water and food on hand, know emergency evacuation routes, and have a family meet up spot should you become separated. And in our current situation, it also meant having enough hand sanitizer and toilet paper!
No one could have truly seen the current pandemic coming, and I doubt anyone alive today has lived through something like COVID-19, given that the last significant health pandemic was in the early 1900s. But it does remind us that, quite frankly, anything is possible these days. And it’s reinforced for us the importance of being prepared not just physically, but financially as well. It means that we all need to have a financial disaster plan. And if we don’t have one, there’s no time like the present to build one.
Much like a natural disaster plan calls for extra food and water on hand, a financial emergency plan needs extra cash on hand – our financial sustenance – to survive in the short term. A general rule of thumb is to have a cash reserves that can meet three to six months’ worth of expenses. And if we find ourselves in a recession, it’s best to have the minimal amount of high interest debt on our personal balance sheets, if any at all. This means we should be keenly aware of what type of credit card balances we are carrying and what interest rate we’re paying. Make paying those cards down a priority.
Also, any worthwhile financial emergency plan needs to be current – and this means that you need to be meeting with your financial advisor on at least an annual basis to review your investment and retirement systems. After what we have just been through in 2020, make sure your risk budget is aligned with your investment strategy. While the risk tolerance we practice is based in part on our own emotional make-up, there is also an objective quantitative component that includes factors such as our age, acceptable drawdown, our income goals, and how close we are to our desired retirement age. I cannot tell you how many times I see folks focus on how much risk they’re taking on the upside of their portfolios, but I find that the average retail investor does not realize that the downside risk also needs to be managed. Our downside risk management is our evacuation route for when a recession, declining market, or even a health scare occurs.
It’s also important to be in tune with your budget and expenses when planning for a financial emergency. What type of lifestyle changes could you make or be willing to make if you needed to? Do you know what your essential bills and expenses amount to? A May 2020 study by the CFPB (Consumer Financial Protection Bureau) reported that roughly half of the retirees surveyed needed to cut their expenses within five years into retirement to make their assets last throughout their life, without taking into consideration a significant market crash or health pandemic. If you were in this group today, how much further could you cut back and still enjoy retirement?
For many folks, the 2020 pandemic isn’t the first financial crisis they’ve lived through, nor will it be the last. Most who are nearing retirement remember the dot-com bubble at the turn of the century as well as the housing crisis that fueled the great recession of 2008. Many have also experienced a personal financial crisis as a result of health-related issues or a layoff. The key to getting through these inevitable events without interrupting your sleep every night is to be prepared.
If you don’t have a plan, don’t be discouraged, it’s never too late to start. A six-month emergency fund, a zero-credit card debt, or an investment plan with a defined risk budget may seem daunting, but as I tell my girls, like any goal, it can be accomplished with discipline, desire and determination. So, take steps to get started now – after all, you don’t want to turn into a financial zombie!
So as always – be vigilant and stay alert, because you deserve more!
Have a great week.
Jeff Cutter, CPA/PFS is President of Cutter Financial Group, LLC, an SEC Registered Investment Advisor with offices in Falmouth, Duxbury, Mansfield & Southlake, TX. Jeff can be reached at firstname.lastname@example.org.
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