An emergency fund is basically an insurance policy where we pay the premiums to ourselves. 

If you have your emergency funds in an investment account right now, you probably get why this isn't a great place for your cash.  With that being said, our memories are short, and in five years everything will be back to “normal”, the market will be soaring, and the temptation to invest your emergency money will be back.  So let's go through the thinking now, so then we can look back on it.

Often, our personal emergencies are caused by circumstances outside our control.  And often, our personal emergencies occur at a time when we aren't the only one having an emergency.

If your hot water heater croaks while the market is on a tear, no big deal.  If the market is up from when you put money in, you can take money out without a problem (except transaction costs and taxes, but let's ignore that for now).

 The catch is that often your personal emergencies will tie to larger emergencies in the world around us.  If something happens (oh, say, a pandemic) the markets will fall, businesses will fail, and jobs will be lost.  If this is your emergency, sure, you can still pull your cash out and use it for your living expenses, but you will be pulling cash out of the market at the worst possible time.  Remember the rule to buy low and sell high?

The truth is most people do exactly the opposite.  When the market is trending upward, they hear how well everyone is doing and they want in.  When the market is crashing down, they panic and want out.

Do yourself a favor and keep some cash in savings for emergencies so you can access it without taking a loss on your investments, ok?

Part of a series. Covers the change to the US Federal tax return filing deadline and the direct payment.

The Coronavirus Aid, Relief, and Economic Response (CARES) Act includes aid for regular Americans. This article covers two of those items: additional time to deal with Federal taxes and direct payments to individuals.

Please note:  before taking action based on this information, please do your own research, including speaking with your CPA, financial advisor or planner, employer, loan servicer, state unemployment office, and heck, maybe even a priest or shaman.  My goal is to share my best understanding and to be of service.  I hope you find this helpful.

On February 20th, 2020 the first of a series of U.S. stock market drops began in response to the global pandemic and concerns about the effect the disease would have on economic activity worldwide.

On March 21, 2020, an unprecedented spike in first time jobless claims was announced by the Labor Department.  There had been 3.2 million first time unemployment claims.  The single largest week record before then was for 700,00 back in 1982.  Check out this article from Business Insider for details.

On March 27th, the CARES Act was signed.  This law provides for loans to corporations, small business loans, household payments, unemployment insurance, tax deferrals and deadline extension, and other funds.  Most of the “goodies” we are interested in are in this act.

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This article covers changes for federally-backed student loans made as part of the CARES Act.

This is perhaps the neatest and cleanest aspect of the CARES Act, as it is one of the few areas where the federal government already had complete control and direct communication with citizens.  If you have a student loan direct from the U.S. government, your payments will be waived until June 30th, 2020.

Do note that this is only applicable to loans that are direct, FFEL from Department of Education prior to 2010, or Parent Plus loans from the government.  Any payments missed during this time will count as payments if you are working toward forgiveness.  No interest will accrue.

If your financial situation is good, you can continue to make principal payments, but accrued interest gets paid off first.

No action is required to take advantage of this program.

 Please note:  this program does not include FFEL loans held by private institutions, Perkins loans, or other private loans.

Journal questions:

How can you best manage your financial goals despite your student debt? 

Getting a feel for the cyclical activity of the economy helps you anticipate what is coming next.

“Who could have anticipated this?” I hear Americans cry.  Only everyone who was paying attention.

I am a Gen Xer, which means I've ridden this Merry-Go-Round a few times now, and I feel like I'm starting to get the hang of it.  I want you to get a feel for it, too, so all of us can be in a less vulnerable position the next time around.

I graduated from college in the late 90s and into the tech boom and Y2K preparations. Both of those things meant the economy was doing pretty well, especially for those of us who landed in IT.  Then someone decided to drive some planes into some buildings, and everything fell apart.  Those who were traveling at the time got routed who knows where and had to make their own way home.  As a country we were traumatized and distracted and the economy took a hit.

“Who could have anticipated this?”

Slowly, slowly, Americans got back to the new normal and the economy started to grow again. People on Wall Street played strange games with mortgages, and when the music ended many of us found ourselves with more house than we could afford and the economy on fire around us. First those who had benefited from the housing boom (carpet and tile manufacturers, furniture makers), and then those who benefited from those companies benefiting (services based companies who had those customers as clients, etc.), and then finally nearly all of us felt the effects.

“Who could have anticipated this?”

 After eleven years of recovery, first to the level we should have been without the games of bad players on Wall Street, then on beyond that, and then higher still, the rumblings began among those who pay attention to market cycles. Over time they got louder and louder.  “We are due for a recession,” they said. 

Now, suddenly, out of nowhere, a pandemic.

“Who could have anticipated this?”

Now, maybe I am making patterns where none exist.  The human brain loves to do this.  It makes it feel safe.  So take what I say with a grain of salt.  But it sure seems to me that every ten years or so we just DO this. While the exact pin that goes into the bubble is a surprise, people who are paying attention generally do know that there is a bubble and that it is due to pop.

So what is the average person out there like you and like me supposed to do about this?

Here are my suggestions:

– Improve financial literacy.  Think about how easy it would be to take advantage of someone who is unable to read.  “Don't worry about the details, sir, just sign right here!” Yet how many of us are financially literate?  How many of us get taken advantage of when it comes to money and numbers?  It was difficult to learn to read, but you did it. I strongly recommend you now do the same thing with finances. There's always more to learn – I don't pretend to know it all, but I'm willing to share what I have learned. Read books, find a mentor, dive into this topic.  We all now see how very frail the little social safety net under us as Americans really is.  We can either change that or understand we aren't immune from it and prepare.

– Understand financial cycles.  The economy and the stock market are always trying to find the correct level.  I think of this as being the same as a pot of water and pasta I'm trying to boil on the stove.  I turn the heat all the way up to get it going, and it starts to boil over, so I turn it way down, and then it doesn't cook the pasta at all. That's how the economy works – cycling through overheating and then being sort of cold and dead and not doing much at all. The next time it seems like all is well, you will know a downturn is coming and will prepare yourself accordingly.

– Work through your stuff.  Many of us have money scripts we are unaware of – things we picked up in childhood that we don't realize are still lurking in our subconscious mind and running our lives.  If you want to start to explore this, check out this worksheet that you can use to start the analysis. It will also get you signed up for my newsletter, which will keep this topic top of mind for you.

– Understand that now is the perfect time to learn how all this works, especially if you have more free time than normal. If you use this time to clear your limiting beliefs and clean up your mind and your finances, when we finally do come out of this you will be in the perfect place to live quietly and stack up cash, knowing that the next downturn is coming.  The next time it comes you'll have what you need not just to survive, but to thrive. In chaos there's opportunity, but you can't take advantage of it if you don't prepare ahead of time. 

Journal questions:

In what ways would this be an ideal time to master your money and mindset?