Because of my role as founder of Tiller Money, I am often asked for financial advice. This has become especially true now in these tough times.
Traditional guidance is about preparation, but I’ll be honest: I don’t think any of us feel “prepared” for what we’re going through because we simply don’t know what we are going through.
Today’s pandemic is a black swan: a highly improbable event with an outsize impact on our lives that’s hard to grapple with until we have the benefit of hindsight.
The ongoing global shutdown will make more sense in the rearview mirror. Today we’re looking at it through the windshield… and it feels a bit dark, rainy, and slick outside.
With that in mind, I do have seven thoughts that are relevant today just as much as they’re relevant when times are good.
1. Spending matters most
We always have much less control over our income than our spending.
In good times, fortunes are made by keeping our spending below our income. In bad times, we survive with careful spending.
If you haven’t looked at your spending, now is a good time to do it. If you’re a normal human, this will sound stressful. Most people would rather clean the house, empty the dishwasher, or mop the floors than what they’re spending.
But I can assure you it will feel better after you’ve done it. Start with the last full month, and make three lists:
- What are the core of your living expenses that you need to spend to keep life going, like electric bills, rent/mortgage, groceries, and power?
- What’s discretionary, that you like to spend, but it’s not required?
- What was your income? How much did you bring in?
You can do this with a pencil and pad of paper. You can also do it with a spreadsheet (we have lots to say about that!)
Your goal is to spell out exactly:
- what you need to spend
- what you would like to spend
- how much you think you’ll make
It’s mostly simple math. Trust me: you will feel relief to see those three numbers.
2. Look ahead six months
Now that you have a cash flow inventory for last month, do the same for the current month forward through six months. If needed, you can do an upside scenario and a downside scenario.
The math is straightforward:
- How much do you think you’ll make each month for the next six months?
- How much are you planning to spend?
- Based on that, how much cash will you save each month (or how much will you need to pull from reserves, a loan, or somewhere else?)
You’re going to quickly see the choices you have ahead. If you just lost your job or your income is cut, you’ll have an idea as to how long you can sustain and what cuts you need to make.
Those choices are personal ones, but you’ll be in a vastly better position to make choices if you have the facts.
If you need to cut, discretionary is the first category. These are the easiest expenses to cut in a pinch.
Living expenses are harder, but they can be reduced. These expenses can include different choices at the grocery store or checking with your mobile phone carrier to see if there’s a plan that can save you money.
3. Set a time and place to repeat the process
Depending on your situation, repeat this exercise monthly at a minimum. Or repeat weekly if you’re new at this or in a crisis.
What have you spent? What do you think you’ll be spending? How much money do you need?
By setting aside this time regularly, you’ll also set yourself up for success in finding solutions. (And you may be in much better shape than you thought, too. Wouldn’t that be a relief to know!)
4. Tune out your investments
If you know from the analysis above that you will need cash in the next few months, pull it out of the market.
I don’t advise trying to time the market – it will add stress, and even the best traders fail at this. Just rip the bandaid and do it now if you know you really need the cash.
If you’re lucky enough and do not need cash right now then do nothing.
Timing the market by selling now and buying later is a bad recipe. My timeless advice, backed by thousands of experts, is to invest in a few broad-based funds (low cost, whole market ETFs are especially great).
Check-in once every three months at most. Annually is even better. If this is money you need in five or more years, the odds are on your side. The stock market has had 9 declines of 20 to 40% since 1945, and they took 15 months to recover on average. The stock market remains a great place for long term money you want to grow.
5. Sit down together
If you have a partner or spouse, all of this is a great exercise to do together. More daunting? Yes. More rewarding? Absolutely.
If you’re solo, it’s also better done with a friend. Talking money with others is taboo in our culture. But you probably have a friend in a similar predicament, and you’ll both feel better sharing your plans.
You’ll make better decisions, too, if you can talk it through with them.
6. Spend where it counts
The parts of our economy shutting down or in dire need of help, where you spend matters.
At Tiller Money, we always believe that we vote with our dollars. Each of us has an opportunity to shape the world ahead with the choices we make in spending.
So make those votes count! Spend with businesses you want to make sure are part of your community and your life.
They are in critical need of your business today if they are going to survive. And if they’re shut down, they’ll need your help when they reopen.
Ditto for donations to non-profits. Their work is every bit as important now as before.
If you have the capacity to give, your generosity now will have an outsize impact.
7. You can do this
Planning out cash flow is math you know how to do. Again:
- Income minus expenses equal cash flow.
- Look back a month.
- Look ahead a few months.
- Make your best guess.
- And keep coming back to it.
This will give you more comfort right now, and it can help you make decisions today that will put you in a better position later this year.