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Sunday, October 25, 2020

These aren’t normal times. You still need a financial plan for the pandemic

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It may seem the future is on hold, but college, home-buying, retirement and other life events are still coming.

Amid a pandemic or even after, few financial plans work out exactly as you imagine they will, says Amanda Grossman, a personal finance blogger in El Paso, Texas.

That’s no reason not to make one. In return, you get financial structure, Grossman says, and a way to focus the resources that come your way.

More from Invest in You:
Three ways to make an uncertain income more certain 
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This simple financial plan makes it easier to get through tough times 

In fact, the very uncertainty is what makes a plan so necessary.

“If you don’t have some sort of plan to fall back on, you won’t be able to tell your money where to go,” Grossman said. “Who knew a few months ago we were going to get stimulus checks?”

It may sound silly, Grossman says, but the No. 1 benefit of a plan is the sense of control it will give you. “Right now, people feel very out of control with jobs and the economy,” she said.

Here’s what to know about planning in the age of uncertainty.

You can DIY

Far from being complex or time-consuming, making a financial plan can be as simple as sitting down with a piece of paper and a pen. Rich Ramassini, a certified financial planner and senior vice president at PNC Investments, says it’s possible the real benefit comes from actually sitting down and doing it.

It’s the actual planning that brings clarity and understanding, “not the 60-page document that is immediately obsolete,” Ramassini said.

Fight the fires in front of you

The pandemic financial plan might be different from the one you thought you’d have a few months ago. “If you’re not able to pay your bills, you shouldn’t be contributing to a college education fund,” Grossman said.

Now is not the time to pay down debt quickly. Make minimum payments only until you’ve got your emergency fund, says Grossman.

Saving for retirement may go on the back burner, but if you have access to a 401(k) plan through your employer, you may still want to save up to the match if you can.

Preserve cash

Rather than ponder about the next five or 10  years, it may feel better to think about the next six months.

“We don’t know what the next five years will look like, so shorter financial plans,” she said, are the way to go.

If you can pay bills, your next goal is an emergency fund. Fewer than half of Americans would be able to cover a $1,000 unexpected expense, according to a survey from Bankrate.

Standard advice says an emergency fund should hold three to six months of expenses, yet Grossman points out we’re not living in normal times. Instead, she encourages six to 12 months of expenses.

Some how-tos

You can do it yourself armed with all the facts about your finances. The internet offers plenty of free calculators and articles to help you create a financial plan.

“Many firms and banks offer financial planning without a charge if you’re a client or customer,” Ramassini said. “Planning is not always costly.”

What you save or gain by going to a professional who charges by the hour could far outweigh what you spend. “Decide whether it’s an expense or an investment — it depends on what you do with the information,” Ramassini said. 

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