One of my favorite stories in the Old Testament is that of Joseph. Sold into slavery as a young man by his jealous brothers, he eventually rises to be second in command in Egypt.
With his God-given ability to interpret dreams, Joseph tells Pharaoh in Genesis 41 that the next seven years will be plentiful. However, the subsequent seven years will be ones of famine.
Pharaoh wisely appoints Joseph to oversee the preparations for the coming disaster. Through Joseph's efforts, many lives are saved, including those of his brothers who earlier betrayed him. It's truly a wonderful story of forgiveness and reconciliation.
The COVID-19 pandemic will probably not be of similar scale to a seven-year famine, but it has thrust many families into very difficult situations. Many are dealing with the health consequences of the virus, including being separated from their loved ones in quarantine.
On top of worry over medical issues, many have lost their jobs (at least temporarily) or fear they may lose their incomes soon. Small business owners are worried about being able to recover from a severe loss of revenue as they are either forced to close or have seen their customers stay away.
Unfortunately, there are no easy answers or quick fixes to these concerns. Medically, our best doctors and scientists are working diligently on an effective treatment. Our federal and local governments are responding with recovery plans to help struggling families and small businesses during this time of need. Families will have to continue to manage as best as they can until the worst passes and our economy begins to recover.
While many tragic situations understandably demand our immediate attention, it's important to not let the crisis pass without spending some time prayerfully considering how well we were (or were not) prepared financially for the emergency. It would be a double tragedy to not learn the lessons God may be trying to teach us in this time of adversity.
Here are six financial lessons we should learn from the COVID-19 pandemic:
- Emergency funds are not wasted assets. The coronavirus is a case study, proving the wisdom of having an adequate emergency fund. Unfortunately, many financial advisers consider emergency funds to be wasted assets with today's low interest rates. In an incredibly ill-timed article, one adviser wrote in January that since "an emergency fund is supposed to be easily accessible and liquid, the recommended vehicle for it is usually a savings account. Savings accounts don't even keep pace with inflation, meaning that an emergency fund is a money-losing proposition over the long term."
Financially, I understand the writer's argument. However, emergency funds are a form of financial insurance, not an investment. God says, "There is treasure to be desired and oil in the dwelling of the wise" (Prov. 21:20), or in other words, the wise have an emergency fund. Would the stress caused by an uncertain job situation be lessened if you had three to six months of expenses readily available in your savings account? You bet it would.
- Debt is stressful, even at 0% interest. One benefit of low interest rates is that it makes borrowing inexpensive, sometimes even interest-free. Typically, these teaser rates still require regular monthly payments, though. Failure to make even one payment on time allows the lender to add interest to the loan from day one, often at incredibly high rates of interest. The need to make these payments can add to your financial stress during times of income uncertainty. This is why I'm an advocate for avoiding non-mortgage debt. You don't need to be worrying about making loan payments when you're trying to keep your family safe and healthy.
- Spending plans maximize the value of each available dollar. Many families are now forced to closely consider how to spend every available dollar. This makes perfect sense in times of financial stress. However, your family can benefit from a spending plan year-round. Right now, this plan may be one of scarcity.
Once this emergency passes, your spending plan can have fun things built into it: eating out, entertainment, vacations and the like. It will no longer be a plan of shortage, but it will still squeeze every bit of benefit out of each dollar. Maybe saving an emergency fund or investing for your retirement is possible on your current income. A monthly spending plan will reveal all your options.
- Understanding yourself is as important as understanding how to invest. Many investors are experiencing their first substantial downturn in the market. The last bear market ended in March 2009 so even seasoned investors may have forgotten how bad it feels to see your hard-earned portfolio balance drop so suddenly.
I've received many calls, emails and texts from my worried clients. Do they move to cash or bonds? Do they stop their 401k contributions until the market goes back up? These are very understandable and very human reactions to a falling market. Even though I'm committed to my investing strategy, I'm not immune to these feelings as well. This reinforces the idea that we must understand our risk tolerance, time frame and investment objectives before we decide where to invest.
Choosing investments simply because they've done well in the past or because your co-worker spoke of their investing success is not how you build a portfolio that's right for you. Understanding yourself first leads to a better portfolio, making it easier for you to stay the course during turbulent times.
- Following the financial media too closely adds to your stress. As a news junkie, I typically enjoy reading articles and opinion pieces, whether they are about investing, politics or a trending news story. In the age of the internet, "news" is often more about generating clicks to a story or eyes on a television screen in order to charge more for ads.
During times of stress, we all want answers. When will the virus end? What resources are available to help me? What can I do to protect my family and my finances? Media companies, including news organizations, know this tendency and cater to our desires with sensational headlines.
The financial media are notorious for offering such "clickbait" stories. I've often seen contradictory headlines appear simultaneously on the same website! "Now is the time to sell" stories appear alongside "Buy stocks today while they are on sale." In truth, no one can consistently and accurately predict the future of the financial markets. If they could, they'd be managing their portfolio, not trying to convince you to read their article. If you're feeling financial stress, take a media break and see if you don't feel a little calmer.
- Don't make short-term decisions that hurt your long-term financial health. Many years ago, John Bogle, the founder of Vanguard, offered his twist on a well-known saying. Instead of "Don't just stand there; do something," he suggested, "Don't do something. Just stand there," would be better advice for investors.
It's human nature to avoid pain. Job losses and falling markets certainly qualify as painful. While making short-term decisions to ease pain is understandable, we shouldn't lose sight of the long-term impact of those decisions, especially on our finances. It may feel good to sell your stocks to stop the bleeding, but doing so means you'll miss some of the upside when the markets begin to rise again.
One of the best moves I made as an investor was a move I didn't make. During the 2007-2009 recession, I resisted the understandable urge to sell my stock mutual funds as they dropped in value month after month. Instead, I consistently added to them throughout the difficult 18 months.
It was certainly uncomfortable at the time, but it was the foundation of significant growth in my family's net worth during the subsequent 11-year bull market. Short-term circumstances will pass eventually, but long-term harm may last for the rest of your life. So, keep your financial focus on your long-term goals when making decisions.
It's important to recognize the wisdom of two verses as we consider our financial stewardship during this stressful time:
"But my God shall supply your every need according to His riches in glory by Christ Jesus" (Phil. 4:19). Remember that we have a God that loves you more than you can comprehend. He knows your needs and promises to provide. You're not alone during this difficult time.
"Be diligent to know the state of your flocks, and look well to your herds" (Prov. 27:23). If you found yourself financially underprepared for the coronavirus, commit to the wisdom that God is providing in this verse. Regularly investing a little time to your finances pays big dividends.
God instructs us to prepare ourselves for times of financial stress that lie ahead. As Joseph demonstrated in Genesis 41, once the COVID-19 crisis passes, begin to better position yourself to care for your family and help others when the next surprise eventually arrives.
John Madison is author of The Steward Plan, a certified public accountant and founder of Dayspring Financial Ministry. He earned a master's degree in Personal Financial Planning (MSPFP), as well as the Master Planner Advanced Studies (MPAS), CRPC (Chartered Retirement Planning Counselor) and AWMA (Accredited Wealth Management Advisor) designations. He has been featured in the New York Post, Forbes, Chicago Tribune, U.S. News and World Report, Bankrate.com and CNBC.com, among many other media outlets. For more information, visit dayspringfm.com.
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