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12 Essential Considerations When Creating A Personal Financial Crisis Plan

- June 23, 2021

Michael S. Schwartz, CFP®, AEP®

I apply a multidisciplinary approach to wealth management dovetailed with structured tax planning.

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Even as we begin to emerge from the pandemic, the lessons learned — including financial lessons — shouldn’t be forgotten. Whether it’s widespread or personal, a financial crisis is likely to come around again. It’s essential for everyone to take steps now to prepare so that a future economic setback doesn’t lead to a disaster.

So how can you ensure you’ll be protected financially should another widespread or isolated crisis occur? Below, 12 industry experts from Forbes Finance Council share strategies everyone should follow to create a solid financial foundation.

1. Save consistently, and live within your means.

Aside from the golden rule of building an emergency fund, it’s essential to demonstrate some self-control, live modestly and invest in your future to ensure financial freedom. Setting aside $100 or more a month can result in savings of more than $1 million by retirement age. Having the strength and discipline to save consistently and live within your means can help prepare you for future rainy days. – Greg Mitchell, First Tech Federal Credit Union

2. Separate rainy day funds from investment accounts.

Prioritize maximizing savings while eliminating debt. Savings are crucial, but the kind of savings also matters. Have a proper rainy day cash reserve that’s separate from accounts used for investments and so on. You will never regret investing in a solid plan and backup plan to protect your family, your assets and your business in the event of another crisis. – Julio Gonzalez, Engineered Tax Services Inc.

3. Focus investments on predicting the success of individual companies.

Investing in innovative, high-potential companies that have exceptional growth still in front of them is the best defense against less-than-favorable economic environments. If you predict the success of businesses as opposed to the market or economy and stay fully invested through market and economic cycles, prices will follow over time. – Gerry Frigon, Taylor Frigon Capital Management LLC

4. Focus on what you save, not on what you spend.

Increase the percentage of your income that you put into savings, and check this every two months. Humans adapt — take on the mindset of the percentage of income saved being your goal as opposed to the percentage of income spent. It takes time, but it is so worth it. One tip I use is to set up a separate bank account from your checking account so you don’t see the money when you open your phone app to see your checking balance. – Kurt Kunselman, AccountingSuite™

5. Hold liquid assets.

Stay liquid, my friends. Having assets that can be quickly converted into cash equivalents during a financial crisis creates optionality. Cash on hand when prices are falling can be used either for defense or offense. – Martin Jarzebowski, Federated Hermes

6. Learn from experience.

A critical component for preparing for future crises is a post-pandemic analysis. Just as in a post-game analysis in football, you’ll want to examine what you did well, where you struggled and what you could have improved upon. Taking a thoughtful approach to incorporating the lessons learned during Covid-19 into a formal disaster plan is a critical step. Memories fade, so document your lessons learned now. – Katherine Jackson, Bayer Properties, LLC

7. Structure your cash flow.

Everyone needs to look at their cash flow. Think about “need” versus “want.” From there, have an adequate amount of cash buffer to serve as an emergency fund. One should break out their cash flow into four buckets: emergency fund, short term, wealth creation and retirement. Having a focus on your cash flows allows you to focus on the controllable rather than the uncontrollable. – Michael S. Schwartz, Magnus Financial Group LLC

8. Maintain a balanced portfolio.

Know your budget and your budgeting plans for good and bad times. The traditional budgeting rule — 50/30/20 (needs/wants/savings or debts) — should be flexible to adapt to the economic situation and risks. The 30/20 fluctuation will help you find the right balance between a feeling of security and a good quality of life. – Dmitry Dolgorukov, HES FinTech

9. Establish a flexible budget.

Do your best to keep things civil and make arrangements outside of court. A lot of people fall into the trap of hiring an attorney to protect their financial well-being, but end up burning through savings due to legal fees. In that scenario, only the attorneys win. Instead of negotiating through attorneys for a year, agree on a plan, then go to attorneys to file the paperwork. – Joe Camberato, National Business Capital & Services

10. Keep enough savings to cover several months’ expenses.

Never underestimate the power of a savings account. At a minimum, having three to six months of living expenses in liquid form will give you time to formulate a plan. Financial downturns turn into crises when individuals are forced to liquidate assets at the bottom to make ends meet. – Robert Reeder, GlassView

11. Have plans in place to ‘live lean.’

Have a scale-down plan in the back of your head at all times. This doesn’t have to be formal, but know what you can cut if you have to in order to survive lean times again. Once you have this plan, take a look at your current spending and ask yourself if you need everything you’re spending money on. Money saved during good years means there will be less you have to cut in bad. – Aaron Spool, Eventus Advisory Group, LLC

12. Don’t waste a good crisis.

The scariest investment markets often provide the most favorable conditions for making lucrative long-term investments. In addition to having liquidity available to cover potential living expenses, make sure you’ve set some money aside to opportunistically invest in a diversified mix of stocks when prices are low. – Sandi Bragar, Aspiriant

DISCLAIMER

Magnus Financial Group LLC (“Magnus”) did not produce and bears no responsibility for any part of this report whatsoever, including but not limited to any macroeconomic views, inaccuracies or any errors or omissions. Research and data used in the presentation have come from third-party sources that Magnus has not independently verified presentation and the opinions expressed are not by Magnus or its employees and are current only as of the time made and are subject to change without notice.

This report may include estimates, projections or other forward-looking statements, however, due to numerous factors, actual events may differ substantially from those presented. The graphs and tables making up this report have been based on unaudited, third-party data and performance information provided to us by one or more commercial databases. Except for the historical information contained in this report, certain matters are forward looking statements or projections that are dependent upon risks and uncertainties, including but not limited to factors and considerations such as general market volatility, global economic risk, geopolitical risk, currency risk and other country-specific factors, fiscal and monetary policy, the level of interest rates, security-specific risks, and historical market segment or sector performance relationships as they relate to the business and economic cycle.

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DEFINITIONS

Asset class performance was measured using the following benchmarks: U.S. Large Cap Stocks: S&P 500 TR Index; U.S. Small & Micro Cap: Russell 2000 TR Index; Intl Dev Large Cap Stocks: MSCI EAFE GR Index; Emerging & Frontier Market Stocks: MSCI Emerging Markets GR Index; U.S. Intermediate-Term Muni Bonds: Bloomberg Barclays 1-10 (1-12 Yr) Muni Bond TR Index; U.S. Intermediate-Term Bonds: Bloomberg Barclays U.S. Aggregate Bond TR Index; U.S. High Yield Bonds: Bloomberg Barclays U.S. Corporate High Yield TR Index; U.S. Bank Loans: S&P/LSTA U.S. Leveraged Loan Index; Intl Developed Bonds: Bloomberg Barclays Global Aggregate ex-U.S. Index; Emerging & Frontier Market Bonds: JPMorgan EMBI Global Diversified TR Index; U.S. REITs: MSCI U.S. REIT GR Index, Ex U.S. Real Estate Securities: S&P Global Ex-U.S. Property TR Index; Commodity Futures: Bloomberg Commodity TR Index; Midstream Energy: Alerian MLP TR Index; Gold: LBMA Gold Price, U.S. 60/40: 60% S&P 500 TR Index; 40% Bloomberg Barclays U.S. Aggregate Bond TR Index; Global 60/40: 60% MSCI ACWI GR Index; 40% Bloomberg Barclays Global Aggregate Bond TR Index.