It was Sunday at noon when I received a call from my secretary. I had missed her call earlier in the day and it was her off day so I figured it was important for her to call again, so I answered. See, at this time, I was hiking a trail in the outskirts of Sedona, practicing social distancing. So I found a spot with okay service near the peak of the trail and answered.
I was supposed to be hiking Zion National Park, and visiting Las Vegas this weekend for the first time during possibly the best sporting event of the year, March Madness. I had even taken two days off of work for this trip. But due to the recent spread of this virus, my girlfriend and I decided to cancel the trip for ours and our patient’s safety.
I knew right away that it was likely going to be Coronavirus related, so I braced myself for her words. Immediately, she told me that the campus in which we worked was going to be closing down for at least two weeks. I asked if that included our office as we were a healthcare facility, not one of the other businesses on campus like the library, pool, or gym. She said it did. She didn’t know much more details than that, but told me she would call once she heard more.
I hung up, and just sort of stood there a little bit thinking. I was thinking about how I might be out of a job. I wasn’t sure if this meant my contract would get cut completely, or if it just meant no paycheck for 2 weeks until the campus opened again. It’s hard to pay a traveler if he actually isn’t working.
My girlfriend asked what happened and what was wrong. At this moment, I had clarity. Really, in the big picture. Nothing was wrong, my financial habits and practices had been preparing me for this my entire working career. I obviously didn’t anticipate a pandemic, but financially, I was prepared for anything due to this pursuit of financial independence.
I felt surprisingly calm for someone who was in the midst of losing their source of income during the worst economic crisis in over a decade. But when I actually thought about it, I knew my plan was safe and I would be fine.
At this point in time, I could likely live 4-5 months on my cash reserve. Normally I don’t have a cash reserve as I typically invest my emergency fund into a brokerage account. However, this January I was beginning to start my “invest in real estate” fund again which could easily be converted to support my ass fund if I lost my job.
Even without the luck of starting this fund at the right time, I could likely live for 5-6 years on my current portfolio or at least 2-3 years on the portfolio that didn’t require any fees to access. Obviously, I’d prefer to avoid drawing from my brokerage account but that was the emergency fund I had in place as I consider myself very risk tolerant.
Even more so, I’d rather just be working and continuing to make money to further pursue financial independence, but after running my numbers through my head. I knew I’d be fine.
I can be more risk tolerant right now, because I have the flexibility to work anywhere. I can always find another contract, or voluntarily take time off of work. I had already taken over a month off between assignments twice during my short working career. My finances give me the flexibility for this. I felt safe. So I said, “I was good” and we continued to enjoy our awesome hike.
However, this isn’t the case for many Americans or quite frankly many people throughout the world right now
How the Coronavirus Impacts the Economy
The pandemic has truly affected everyone throughout the world. One of the first times in my life that something has been felt in every corner of the earth. Natural disasters have occurred, but this normally occurs in limited geographic areas. Diseases have spread and been more deadly than this virus, but usually this just involved avoiding some food or region of the world. Even war, which affects many, has not seemed to have the same everyday impact on each household as this virus has.
All of these events are tragedies and affect millions of people but haven’t quite reached everyone like this pandemic has.
And like all the events above, this pandemic has started to affect the economy. Like all economic downturns, the stock market has dropped quickly but again, unless you are living on your portfolio, your plan shouldn’t change too much.
But because of these economic changes, people have begun to lose their jobs, their hours, their overtime, or been forced to use their PTO, voluntarily work, or shut down their business. All of which has led to unexpected changes to people’s financial states.
According to a recent article from NPR, 18% of Americans have lost their job or hours so far and this number is likely going to rise significantly higher as more places continue to close, lose customers, lose patients, and lose revenue. People aren’t leaving their homes or spending money on non-essentials. So more and more companies will need to continue to cut non essential staff to stay afloat. Many may even shut down completely during this process.
In quickly polling my friends and family, these our some of the current situations:
- Bartender: All Bars are closed in his State.
- Graduate Student: Delayed graduation due to cancelled clinicals and postponed hands on experience.
- Physical Therapist Colleague: Office closed for 1 month, forced to use PTO or not get paid
- Physician’s Assistant: Stopped all elective surgeries
- Journalist: Remote work
- General Dentist at Private Practice: Closed except for emergency procedures
- Retail Manager: Store is closed, no commissions. Gets “Covid Pay” but still has to “voluntarily” work.
- Flight Attendant: Hours Cut
- Myself: ???
I always thought that as someone in the healthcare field that I would always be very safe in most economic down turns but this is clearly affecting me as well as many others in this field. Many private practices/outpatient facilities are cutting non-essential procedures. And others are losing patients, simply as people are limiting what they are exposing themselves to, especially if they are on the immunocompromised side.
We even have certain healthcare professionals claiming they can help prevent the coronavirus to try and stay afloat. Here is the actual advice titled “How to Catch Coronavirus” if you don’t believe me.
“Skip your chiropractic adjustments. Handicap your nervous system, the master system that controls your entire body. Wait until symptoms are present before doing anything.”
As you can see, it’s affecting everyone, even those in some of the historically “safe” jobs. And this may be just the beginning.
So what’s the point?
Well, you see, most of us understand how downturns work, but what most of us don’t understand is how to protect ourselves financially to ride this storm. Typically, most people understand that many lose their jobs during downturns, but most never assume it could happen to them. Until it does.
I could never have predicted a pandemic like this in a million years, nor could anyone else. It’s been unlike anything we have ever seen, but it happened/is happening. We went from safety in our health and finances to fear and anxiety in the blink of an eye.
And it’s at this juncture where holes begin to get poked in our financial plan and this financial crisis begins to become magnified.
Financial Plans
A financial plan is like a map. It helps guide us towards our financial goals. It’s also the guiding compass when we have to navigate through rough waters. The plan helps get us through these times safely without getting too far off course. A good plan may not be able to predict what’s coming, but it’s equipped with the tools to save you if/when disaster strikes.
And you may be saying, well I don’t have a financial plan like that. Well, we all have financial plans in place whether we realize it or not. The problem is that most of our financial plans only work when it’s sunny outside.
The most common plan that I see is usually an unwritten plan or understanding of what level of housing or car payments we can afford given our monthly income. Meaning, most of us understand that to afford a $1500 rent/mortgage we need to make above this number in monthly take home pay to afford it.
Most people understand that to get by, we need to earn more than we spend to avoid going into debt. Although some are still figuring out this concept. And if that is the case, this is a whole different conversation, and I would suggest reading some of my other articles on saving. However, for the purposes of this article we are assuming you make more than what you spend in a month.
So with this assumption, most of us are able to live very comfortably. Saving a little bit, traveling some, or maybe even investing if anything is left over. In this position, we can spend freely while avoiding debt. We are living within our means, and doing just fine.
When the Storm Hits
So we have a general financial plan. Could it be better? Yes of course, but it’s a framework that most people have that tells them that they are financially safe. And this plan works the majority of the time until the unpredictable happens and the storm rolls in. That’s when this plan goes under the microscope and some of its flaws begin to show.
It’s a plan that will keep us afloat during good times but it’s missing the safety plan in place when the waters get rough. What if somehow this income is taken away from us? Whether our company lets us go, or we can no longer work for whatever reason. This is just like what is happening to thousands of Americans in the United States right now. Most of whom would never have even thought that it was possible for them to lose work.
This is where financial hardship comes. Because our previous plan of making more than our $1500 house payment no longer works anymore. This housing payment which was easy to afford before, now becomes nearly impossible. We may be able to stay afloat with what extra money we have in our checking account or apply for unemployment. However, this money dries up quickly.
Once this occurs, this is where we have to begin to reach into our 401k paying ridiculous early withdrawal penalties, we go into credit card debt, or we eventually lose our home to foreclosure all together.
This is sad, terrifying, and a reality for many families. And you may be saying that this will never happen to you, which I hope is true, but many others have felt invincible like this too and have ended up in a similar position.
We don’t know what will happen to our health, our jobs, and the overall economy as a result of the Coronavirus. If we did, we wouldn’t be having this conversation. But what we can control, is our plan in place in case it is our family that is affected. And it may not shield you completely from the storm but it will definitely help you to weather it more than the average American.
My Financial Crisis Plan
My pursuit towards financial independence wasn’t an exact map to navigate the Coronavirus but what it did is it gave me the financial flexibility to be able to take the punch of potentially losing my job without knocking me out completely.
I have cash available to live off of in the short term, and post-tax investments available to live off of if need be if I was to be out of work for an extended period of time. Obviously, I’d prefer to not sell my portfolio at a loss but my flexibility in life allows me to have this high risk emergency fund in place for this exact reason if need be.
I also know that I am capable of living on less than the majority. My lifestyle allows me to cut the fat if you will and live off far less than the average consumer because I have shown already that I can. I keep my rent down, food budget down, and am capable of living a lean lifestyle.
This comes from years of not inflating my lifestyle just because my income has risen. A concept that seems easy but is much harder to revert back to when you realize just how much we spend in our everyday life.
I also have the work flexibility to work in any of the 50 states if need be. I am not tied to one home. This allows me access to much more jobs than the average person who is limited to likely only a certain radius from their home. Yes, working 13 weeks away from my girlfriend is not the ideal plan, but it is manageable if it becomes a necessity. Especially with her beginning clinicals this summer.
So What Should I Do Now?
1: Create an Emergency Fund: So if you don’t already have an emergency fund planned, it’s important to begin creating one. For those less risk averse, this fund should be kept in a savings account. Preferably a high yield savings account to at least let your money earn some returns.
If you are more like me, more risk tolerant due to no dependents and spending flexibility, it’s possible to create this emergency fund in your brokerage account but you need to be able to swallow the pill that you may need to draw down on this money in a loss.
In both situations, you want to have enough money to live off for likely 3-6 months. This allows you enough time to prevent yourself from going into debt, foreclosure or bankruptcy.
2: Track Your Spending: The next thing you should do is track your spending. This allows you to have a basic understanding for where your money is going so that you know the areas that you will be able to cut down, in times of crisis or just to improve your savings rate in general.
3: Track Your Recurrent Bills: This goes hand in hand with tracking your spending but deserves it’s own point. Most of us have many recurrent payments that we don’t even realize, so creating an excel spreadsheet showing exactly what it is that we automatically pay for each month is a great way to stay organized.
This often shows old magazine, credit card, TV, video game, music, exercise or food fees/subscriptions that we no longer use/need and are blissfully paying for every month or year.
Note: For many bills, a quick phone call is all it takes to negotiate a price down on an item that you still value, the same holds true with most insurance. Most recommend that you should try to renegotiate each recurrent payment annually. I know many credit cards will waive the annual fee altogether if you call and attempt to cancel a credit card.
4: Create a Budget: Tracking your spending also allows you to make a budget. I’m not a big fan of strict budgets in general, but when times get tough, they become more necessary to have in place to control spending and plan for the future.
5: Learn and Remember: The last thing I recommend, is to learn and remember. Remember how this feels during a recession, remember the anxiety, remember the stories about others you heard. Do this not to create fear, but to respect the process. Because eventually the rainbow will come and it will return to a bull market again. When this occurs, it’s easy to slip back into bad spending habits, or spend your emergency fund as we begin to slowly feel invincible again.
There’s a reason your grandma has a full superstore in her basement. She has lived a recession before, she remembers it, and won’t be caught unprepared again. I’m not saying you need to stockpile like this, but you need to be financially prepared for anything.
Conclusion
I know this turned out to be somewhat of a doom and gloom article but that was not my intent. My intent wasn’t to create fear but to simply point out the sad reality for many Americans in the next few months.
A healthy dose of fear is normal and important. You shouldn’t be fearful to the point of sleep reducing anxiety or the stockpiling of toilet paper, but you should be fearful enough to understand the importance of having a crisis plan in place in case the worst happens.
I admit, I had my moment of fear when I thought I was going to be out of work, but due to my pursuit of financial independence, in reality, I knew that I was going to be just fine. I’m hoping I can help a few others prepare for this realization as well.
What’s the state of your job? Do you have a financial crisis plan in place?
Let me know what you think, feel free to comment below! Or if you have specific questions, feel free to email me directly @fiscaltherapist1@gmail.com
Update:
After I finished this article I did get an update on my current working situation as I called my recruiter. As it turns out, my traveling company has been great regarding the Coronavirus. If my job shuts its doors, I will still get paid. If I was exposed to the Coronavirus or if I contract the Coronavirus, and need to be quarantined I will still get paid as long as I didn’t expose myself to the virus through travel outside of the country.
Following this call, my secretary called, and reported that we will be allowed to keep just the physical therapy office open on campus to continue treating patients. We have a few hoops to jump through, but overall it is business like normal.
So despite my fears, I am able to continue working and making money. Allowing me to fully take advantage of this downturn, investing on the way down and hopefully all the way back up to the top.
