As I write this column, the worries over the spread of the coronavirus are increasing, and the stock market keeps dropping. As regular readers know, I avoid giving any investment advice, because I am not qualified, but there are a few things that I have been thinking about because of this issue.
First, it’s a good reminder that if you have a specific financial need for money in the next year or two, for example college tuition, you should not have that money in a risk investment, like stocks. Things happen!
Second, if you are planning a major trip or vacation, for example overseas, make sure that you have travel insurance. Things happen!
Third, make sure you know what your health insurance does and does not cover, especially when you are away from home, and know what evidence of health insurance you need to carry with you when you are away from home. Things happen!
Fourth, have that emergency fund savings account. Experts continue to say six to eight months of expenses, and if you deplete some of it for a true emergency, make sure that you build it back up as soon as possible. Things happen!
Last, predictions about any upcoming recession can go up in smoke with an unpredictable event like 9/11 or the coronavirus.
On a different subject, but one that we periodically revisit, it is tax time again, and another great time to revisit your finances and your financial plan going forward. Here are just a few things that I tend to focus on at this time.
• Are your withholdings appropriate? For me, I don’t want to under-withhold or receive a big tax refund every year. If you do receive a refund, what do you do with it? If you don’t just spend it, but put it in a retirement fund, a 529 plan, or an emergency fund, what if you adjusted your withholdings so that you could contribute that refund to those accounts thoughout the year, and that money would be earning a return earlier? I know that some people see it as forced savings to put to good use, but earning a return earlier is important.
• It is also a perfect time to commit to reducing and eliminating any high-interest debt, like credit card debt. Anything that you can do to shorten the term, lower the interest rate, and avoid it in the future is critical.
• In addition, it is a perfect time to make sure that you update what I call an “Estate Planning File.” It should include where your original will is, with a copy in the file. It should also include copies of a recent month of all of your financial account statements. In addition, it should include information on any major outstanding debts, like a mortgage, home equity loan, auto loan or lease, and information on any insurance. Finally, it should also include copies of beneficiary designations, and powers of attorney. What is the financial information that your family will need if something happens to you? You can’t have too much information in that file.
• Yes, it’s the time to update your budget, and look critically at your spending habits. Are you spending more money than you would, if you paid more attention to your spending on some of those everyday things that we often lose sight of? I recently read a letter to the editor that claimed that pack–a-day smokers spend $18,000 over 5 years, and $36,550 over 10 years. Who hasn’t heard a friend or relative talk about how they finally realized how much they were spending on those one or two coffees a day out at their favorite coffee spot, or that take-out food. As I always say, a budget can help you control your spending, rather than have it control you, if you really track and pay attention to all of your spending, especially those small habitual spending items.
Finally, although there are so many other financial things for you to review, it’s time to get serious about monitoring your credit. Checking your credit reports and scores will enable you to catch any reporting errors, detect any identity theft, and improve your credit if needed. Stagger over the year getting a free annual credit report from each of the three bureaus, Equifax, Experian and TransUnion, at AnnualCreditReport.com. Also, there are a number websites, like NerdWallet, where you can get a free credit score, and know that checking your own credit does not affect your credit score.
On a final subject that will affect all of us, you may have seen that it appears that RG&E and NYSEG rate hikes will go into effect in May, and phased in over time. It is not final yet, but the RG&E rates for electric could increase by 5.4% and for natural gas by 4%. Although these increases are not necessarily dramatic, they are a good reminder that prices go up and that you have to plan for that in your long-term financial thinking and plan. For example, if your income is not increasing, but the prices of things you “need” are, you have to increase your income, decrease your expenses, or some combination of both. What your mindset should not be is to put more things on a credit card, carrying a balance, and ending up paying interest, leaving you with even less money to purchase what you need.