April Financial Checklist: The Painful Nudge Towards Happiness

Hello out there! How is everyone doing? I hope you are safe and most importantly, staying at home. Over the past few weeks, I have written and rewritten this post several times as each week (heck, each day!) inevitably sparks a new sentiment or perspective. From fear and panic to acceptance and hope, I’ve run the gamut of emotions through this pandemic already. Just like COVID-19, no one is immune to the physical, emotional, and mental impact of a global pandemic. And matter how small or large our personal battles may be, it is a reminder to give ourselves and those around us a little grace.

 

The Best Things in Life Are (Mostly) Free

I recently took a free course called “The Science of Wellbeing”, taught by Professor Laurie Santos at Yale. With over one million new followers signing up for this course during quarantine, maybe you have checked it out too. 
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As a Psychology major and former Analyst, I was excited to find a data-backed method for examining the idea of happiness. I am as guilty as anyone of following highly curated wellness brands and lifestyle gurus, but the skeptic in me still struggled with its underpinnings to consumer culture. As suspected, the research presented in the course validated that the things that make us happy - the ones that have a lasting impact and increase positive connections within our brains, are (mostly) free. 

Unfortunately or fortunately, this pandemic is painfully nudging us towards some of these conclusions as well. That providing a helping hand might make us feel better than purchasing something for ourselves. Or having that extra time to reflect, and if you’re really lucky, DO NOTHING, might feel more beneficial than a larger paycheck. And how important social connections, whether it be with a stranger or a close friend, really are. 

Building Wealth is Not All About Money

When it comes to managing money, I’ve learned that 80% is mental. It is about getting in tune with your greatest needs, overcoming unconscious biases, challenging your intuitions, and investing in the right areas of your life. Wealth is not measured by how much money you have at the end of the day, but rather by your ability to support your own well being over time. Getting a little more head space can easily rewire your financial habits.

If you feel like you have been served a crash diet though instead of a balanced plan to handle your life right now, you are not alone. Change is hard and creating new habits is even harder. My hope in writing this blog is that I can provide guidance along the way, both in the good and challenging times.
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April’s Monthly Checklist

While the tide looks to be cautiously turning with a flattening curve and government safety nets, many unknowns still remain about the upcoming months ahead. If you are spending a little more time at home, take this opportunity to do a little spring cleaning with your finances to keep your short-term self afloat. Getting organized, knowing what levers you have to pull, and maximizing your resources can go long way. Here is how you can get started:
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1. Know where all your money is

​One of the reasons I am a big fan of tracking net worth is that it forces you to stay on top of your accounts. When things get tight, you want to know where every last dollar is. Check your bank accounts, check your investments, check your pockets. Make sure you have a clear and realistic understanding of your overall financial picture and where your money lives. ​
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2. Understand your liquidity

​When companies talk about their ability to weather storms, they often speak about their financial liquidity. Liquidity can be seen as your ability to meet your short-term obligations (i.e. expenses and bills) when your regular cash flow (such as income) is impacted. 

Your household finances are more or less a business too. Cash is your most liquid asset, however, your investments can also be converted to cash as well. Selling investments in a market downturn is not ideal but is an option to keep in your back pocket if your cash runs dry. 

Check out my Asset Allocation Workbook to outline each of your accounts and determine how much cash and liquid investments you have.

3. Calculate your expenses

There are two types of expenses - discretionary and non-discretionary. Discretionary expenses are non-negotiable and may incur a penalty if not paid. Think rent or mortgage, bills, food and most importantly, toilet paper. 

Non-discretionary expenses are the luxury expenses that aren’t necessary to get by. Subscriptions, services, and yes, online shopping for non-essential items, are examples of non-discretionary expenses. 

Make a list for each of these expense types and estimate your average monthly expenses for each category. If you need to cut back, you’ll know what your minimum monthly costs are to get by.  
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4. Prioritize your short-term obligations

Your first priority during a crisis is to make sure you can meet your short-term financial obligations with the current liquidity or cash flow that you have. Taking on additional debt to cover these expenses should be avoided at all costs.

If you think your job or financial situation will change in the near future, you’ll want to make sure you have an emergency fund set aside to cover your monthly expenses for a set period of time. 

There are a few things to keep in mind while determining the appropriate amount of funds:

1. How much liquidity do you have?
2. How many months do you want your emergency fund to cover? 
3. What lifestyle do you want to have if you are living off your emergency fund?

The general recommendation is to set aside 3-6 months worth of monthly expenses. Your liquidity, however, will dictate how much you can put aside and how you allocate those funds over a certain time frame. You may have enough for three months’ worth of expenses without making any changes to your current cost of living. Alternatively, you may feel more comfortable stretching that money over six months by cutting back on more non-essential expenses.
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5. Track your income and expenses

​Even in the best of times, tracking your income and expenses is an important habit to develop. What gets measured can be better understood and in many cases, improved. When you are in crunch mode or living on thin margins, it is even more imperative to avoid unnecessary debt. 

Thanks to technology, there are many apps and platforms out there that help track and aggregate your data in real-time. I use Mint.com, which allows me to categorize my expenses and track them over various time periods.

6. Make sure your accounts are FDIC or SIPC insured

There is no reason to pull your life savings out of the bank in fear of it defaulting. Most institutions are FDIC insured (for bank accounts) and SIPC insured (for brokerage accounts), which means that your money is protected up to a certain amount should the bank go under. 

Typically banks are insured by the FDIC for $250,000 for each bank account and insured by the SIPC for $500,000. You'll want to make sure you know however how much your bank or brokerage service covers. If your account exceed the limits, consider how you should re-allocate your money to ensure the full amount is insured. 
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7. Leverage your benefits

Whether it’s a bank account, credit card, or company perk, chances are your financial situation includes some benefits. Make sure to familiarize yourself with your options and take advantage of them accordingly. 
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• Shift your savings and emergency funds to an account earning the highest interest rate. Many banks have unfortunately slashed interest rates in their high yield interest accounts, but a few still offer significantly higher rates. Marcus by Goldman Sachs and CIT Bank are examples of banks that are still offering interest rates of 1.5% or higher (as of April 2020). 
• Use a credit card that offers the optimal rewards or cash back for your purchases.
• Leverage your health insurance plan while you are employed. While you may be more restricted in your healthcare options during this outbreak, benefits such as online mental health services or prescription glasses may still be available. 
• Stay on top of government stimulus plans, including the CARES Act, PPP (Payment Protection Program) and unemployment benefits to ensure you are getting the maximum benefits.

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Embracing Positive Change

Seismic events are not only the catalyst for economic corrections but also the human ones. We start to count our blessings, remember our loved ones, and refocus on what matters most. We reassess what we could be doing differently to carry us through the next crisis. And we create new changes or habits to move forward. 

So embrace the painful nudges, the ones that will ultimately bring you happiness and financial freedom in the long run. We’re all in this together.

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