This is a crazy time we are living in right now.
The stock market is dropping like a brick and there is talk of a recession.
Not only are we in a financial crisis, but we could be on the verge of a US economic collapse.
But I don’t think times are as bad as they seem.
Yes they are stressful, but overall, this is just a pothole in the road of life.
This isn’t to downplay what is going on, but to put things into perspective.
It is critical you think rationally with a clear mind during these times.
And this post is here to help.
I will show you how to survive a financial crisis.
There are 5 steps you need to take, and they have 3 themes to them:
- Stay calm
- Focus on the long term
- Take advantage of the situation
I will walk you through each one and if you follow the steps, you will not only survive the financial crisis we are in, but will be well prepared for the next financial crunch that comes along.
5 Steps To Surviving A Financial Crisis
#1. Stay Calm And Educate Yourself
There is a lot of news stories out there about the Coronavirus (Covid-19) and some of it can be misleading.
The reality and the facts are this:
- Race and ethnicity does not increase or decrease the odds of getting sick
- The incubation period is 7 days on average (this means it could be 7 days after getting the virus until you show symptoms
- Covid-19 symptoms are very similar to the flu: fever, cough, muscle pain, tiredness, difficulty breathing
- Most cases of the virus are mild, meaning people don’t know they have the virus, they just think they have a cold
- The mortality rate varies by age group. Most age groups have a 1% or less mortality rate. For those over 60 years old, the mortality rate increases to between 8% – 15%.
The bottom line, this is something you should take seriously. If you are under 60 years old and healthy, your life isn’t necessarily in danger.
You will have to miss some work if you get the virus, but your life shouldn’t be in danger.
But your finances will be.
Missing 2 weeks of work is going to matter and is could easily lead to a personal financial crunch.
You won’t have an income, yet the bills will still be coming in.
But there is hope.
Many credit card companies will work with you if you have the virus. They may give you a longer grace period to pay your monthly bill, or they may even lower your interest rate.
The point is, make sure you call them.
And while you are at it, call your other service providers and see if they offer any relief. Some may and some may not.
But if you can get some financial relief, you will be thankful.
Other than that, be smart.
Don’t shake hands with people. Wash your hands more frequently than you do now. It helps to carry hand sanitizer and disinfectant wipes with you.
Avoid large crowds. Eat healthy and get some sleep.
The more you take care of yourself, the lower the chances you have of the virus wreaking havoc on your life and your finances.
#2. Focus Long Term
The next step to surviving a financial crisis is to look at your savings and focus on the long term.
Specifically, I am talking about the stock market.
I know it has had some wild swings over the past few weeks and it can be scary.
But you have to focus on the long term as much as possible.
We’ve had a calm run up in the market since the US economic collapse of 2008 with very few wild swings or pullbacks.
So in a sense, we were due for one.
And because we haven’t dealt with sudden drops recently, they seem scarier.
Because of this, you need to keep things in perspective.
Here are a few examples:
- Since 1928, the stock market has been positive 74% of the time. In other words, you are more likely to make money and not lose money if you stay invested.
- The media hypes market drops to draw in viewers. They make money through advertisements, so the more gripping a story is, the more eyeballs watch, and the more money they can make.
- A stock transaction takes two parties. This means that in order to sell your holdings, someone else has to be willing to buy. Ask yourself, who is buying and why are they buying?
By staying calm and looking at the long term, you make fewer bad choices and preserve your wealth.
I understand that you’ve lost money as the market drops. But if you stay invested, you have the opportunity to earn it back and more.
But if you sell, you lose the opportunity to earn it back.
For example, let’s say you had $1,000 invested and today it is worth $600.
If you sell now, you lost $400 and that’s it.
But if you keep the money invested, it has the chance of growing in value back to $1,000. And it can easily keep growing into more.
The result is you could end up with $1,500.
And don’t think the odds are against you earning it back either. As I noted above, the market rises 74% of the time when looking at it on a year to year basis.
If we look at any 10 year period in the history of the stock market, the odds of a higher market are 94%!
In other words, you have a 94% chance of making money over 10 years if you just stay invested.
So I encourage you to stay invested. Don’t let fear make decisions for you.
But if you are truly scared of the stock market, you need to use this time to your advantage.
You need to review how your money is invested.
If the loss in value of your investments is keeping you up at night, this is a clear sign that you need to re-evaluate your asset allocation.
We all tend to focus on how much money we can potentially make, but downplay the potential for loss.
Then losses start happening and we freak out.
If these market moves make you want to pull your money out, consider lowering the percentage of your investments in stocks and invest more in bonds.
This can be achieved by investing new money into bonds and not stocks.
While your money won’t grow as quickly, you will experience less losses or smaller losses when the market drops.
And this will allow you to sleep at night and stay invested for the long term.
The bottom line is to make sure you invest in a way that makes sense for you.
Sure it would be nice to invest 100% of your money in stocks, but if you aren’t able to handle it, you shouldn’t do it.
Put another way, look at the stock market like an amusement park and the rides at the park are the various ways you can invest your money.
A roller coaster is going to give you a potentially high return, but it will be a wild ride.
If you hate roller coasters, you don’t ride them. But this doesn’t mean you avoid the amusement park completely.
There are other less wild rides you go on that bring you joy.
Investing is the same way.
Find the ride that makes sense for you and ride it all day long.
Finally, don’t wait for the markets to calm down to start investing again.
I know it sounds crazy, but you should not stop investing right now.
The market will come back and rise higher in time, which means you will make money.
When the financial crisis in 2008 hit, we had clients who wanted to stop investing. We talked them through it and not only kept them invested, but invested more money.
All of the losses from 2008 were gone a few years later and they rode this market higher as a result.
It all comes back to looking at the long term.
Do not make decisions based on emotions. It never works out.
You make bad money choices when you are emotional. You make bad relationship choices when you are emotional. Heck, you make bad eating decisions when you are emotional.
Do nothing until you are calm and back in control.
#3. Refinance Your Mortgage
I’ve covered how to stay calm and focus on the long term when it comes to surviving an economic downturn. Now it is time to see how you can take advantage of times like these.
If you own a home and your finances are in decent shape, now is the time to refinance.
Interest rates are at historic lows, so if you have an interest rate 4% or higher, it makes sense to look into refinancing.
Why is this?
You can get a 30 year fixed rate loan for 3.50% right now.
If you have a $200,000 loan at 4.50% interest, you are currently paying $1,013 a month for principal and interest.
A refinance at 3.50% would lower your monthly payment to $898, saving you $115 a month or $1,380 a year.
But you will save even more than this.
Let’s say you have 27 years left on your current mortgage. Without refinancing, you will pay $138,463 in interest.
If you refinance, you will pay $123,311 in interest. This means you save $15,152 in interest over the life of the loan.
And if you get an even lower rate, you save more money.
But you won’t know how much you will save without looking into this.
And this has been the biggest issue, until now.
Until now, you had to called a mortgage broker and waste a lot of time trying to see if a refinance made sense for you.
But today, you can use Credible.
With Credible, you input your loan details and Credible will give you customized quotes within minutes from multiple lenders.
All you have to do is pick the one you want, upload some documents and be on your way to saving money.
Best of all, it is free to get a quote and there is no obligation to proceed.
So even if you are just curious about how much you will save, you can try Credible without commitment.
And if you do find a rate you like, the process is much easier than going with a traditional mortgage broker.
Click the button below to see how much money you will save by refinancing!
#4. Invest In The Stock Market
Another way to take advantage of the money crisis is to invest in the stock market.
To some, this sounds like crazy talk.
But investing consistently over time yields the best returns.
And while it looks like the market is only going down, you have to remember that over the long term, the market goes up.
So by investing now, you are taking advantage of lower stock prices.
Will you turn $100 into $1 million overnight? Not likely.
Will the wild ups and downs suddenly stop? Probably not in the short term.
But over the next few months, people and the media will start to act more rational and the market will go back to behaving normally.
So how do you start investing right now?
If you already are investing, don’t stop. Keep doing what you are doing.
If you are not investing, Betterment makes it easy to get started.
When you invest with Betterment, you take 10 minutes to create an account and they invest your money for you based on what makes sense for you.
In other words, they put you on the right amusement park ride so you can have fun all day long.
And the best part is you can invest as little as $10 a month.
Here is an example for you.
If you invested $1,000 in the stock market in 2008 and stayed invested until the start of 2019, you would now have $2,830!
The point is, investing works if you stick to over the long term. And Betterment helps you do this.
#5. Learn And Improve
The last tip for surviving a financial crisis is to learn from it and grow.
While it is important to grow as a person, I am talking specifically about your finances here.
This could be the wake up call you need to finally build your emergency fund.
This could be the wake up call that you need to pay down your debt.
When the US economy crashes, there is added stress to the stress you are already dealing with on a daily basis.
But you can limit this added stress by taking the time to improve your finances.
Think about it this way.
Imagine you get your financial house in order. You have a solid emergency fund built and you don’t have a lot of debt.
When the next financial crisis happens, you will be frightened at the start.
But then you will think about it and realize that your finances are in good shape to handle the collapse because you prepared for the economic downturn.
While others who didn’t plan ahead will be dealing with unimaginable stress, you will be taking each day is it comes, without much added stress.
As great as this fantasy sounds, it can be your reality.
You just have to be willing to take the steps today to get your finances in better shape.
Below are some excellent resources I’ve written to help you succeed.
- Learn the best tricks to cut monthly expenses and save money
- 7 steps to building an emergency fund even if you can’t save
- Commonsense steps to getting out of debt for good
- How to grow your own money tree
I encourage you to take the time now to start improving your finances.
While you won’t dramatically change your financial life overnight, you can start taking the steps so in the future, you are on solid financial ground.
Finally with all the time you are spending at home, make it a point to organize your finances.
You probably have a pile of statements and receipts in a drawer and don’t know what to keep or toss.
By taking the time to clean these statements up, you will have better control over your finances and save money.
These are scary times for many people.
But with a little common sense, you can survive this financial crisis and come out the other side with minimal damage.
The keys are to stay calm, look long term, and take advantage of the situation.
If you can do this, you will find that periods like this aren’t as stressful as they used to be.
And the result is you can keep living your life without much worry.