Chinese Coronavirus shows how leveraged our economy is

Two weeks into the voluntary Coronavirus lock-down, and people’s bank accounts are dwindling rapidly. With 78% of Americans living paycheck-to-paycheck, the life of luxury that has been all-too-easy to attain through easy credit and not saving, is exposing just how leveraged most people are.

My grandfather kept more cash in a cigar box than the bank. My parents always had thousands in cash in the house and savings in the bank. My father-in-law, I’m convinced, had excessive amounts of cash stuffed in mattresses and other odd places. Though it may have seemed unwise or even silly in our digital economy, these people came out of the Great Depression, and they knew about economic struggles on a level nearly no one today can comprehend… until possibly now based on how long this lasts.

The unemployment offices in Colorado had 25,000 new filings last week, and fielded 100,000 calls (Denver Post 3-22-2020). Nearly 80,000 are now looking for jobs. And we’re a state with little more than 5-million residents. That’s just how fast Chinese Coronavirus has hit the economy and reflected how unprepared most Americans are for such an unanticipated economic hit.

But how often are economic hits ever anticipated?

I have great confidence America will come out of this faster than many think, and stronger economically. However, individuals need to reassess their personal finances moving forward. The formula is so simple, yet difficult to follow:

  1. Have no less than 3 months of pre-tax income in the bank.
  2. Do not allow basic living expenses to exceed 1/3 of your income.
  3. Cut up the credit cards and only purchase what you can pay with cash.
  4. Limit eating out to once per-week, rather than the average of 3 times weekly.
  5. Limit installment debt to autos, and keep payment plans to 36-months with 20% down.

So what should you do with the rest after cutting back that much? Split the remaining funds between short term savings, long term investing, and charitable assistance. And as for the long-term investing, evenly disperse those funds between aggressive and conservative accounts; understanding that our economy fluctuates (dramatically at times as we’re witnessing) and a mix of the two will assure stable long term gains that lead to a healthy financial retirement that limits dependency on our crumbling Social Security system.

At Ascend Financial Group, we work with individuals in helping them structure good financial strategies to live debt free, invest wisely, and prepare a strong legacy.

Contact us to schedule a virtual appointment.