Designing A Plan to Manage Your Money Through Stressful Times

Most Americans have felt the devastating financial impact of the COVID-19 pandemic, which wiped out three years’ worth of financial gains in only three months. As such, African Americans have been hit hardest by its severe blows.

According to Prudential’s 2020 Financial Wellness Census, a staggering 56% of African Americans are concerned about their financial future – and with good reason. Some 22% of African Americans have witnessed their household income drop by half or more versus 17% of Americans in general. Moreover, the unemployment rate for African Americans has swelled from 7% in December 2019, nearly its lowest level since national records began in 1972, to 11% in October – the highest rate among all ethnic groups. And the median household income slid from $55,000 to $45,000 compared to the median figure for the general population of $75,000.

Despite the turbulence, however, now is not the time to sit on the sidelines when it comes to your money matters. In fact, these times present the perfect opportunity to re-evaluate and reset your finances.

The first step is an assessment of your financial position with an emphasis on your current spending habits. “The main thing now is that you can’t really afford to freestyle with your money,” asserts Delvin Joyce, founder of Prosperity Wealth Group and a Charlotte, North Carolina-based financial planner affiliated with Prudential “It’s really time to be super intentional, tighten the belt and see where we can cut any unnecessary spending so that we can truly start to get back on our financial footing.”

Joyce, who spoke at the recent Black Enterprise Your Money Your Life V-Summit sponsored by Prudential, also cites that since people are spending less money on pre-pandemic expenses like travel or gas for their car, they can reallocate those dollars to essential and beneficial items.

Ash “Ash Cash” Exantus, the self-described financial motivator who also spoke at the V-Summit, maintains individuals should critically review their financial priorities to determine which expenditures really matter given the current climate.  If you haven’t, cancel non-essential items in which you derive limited value like gym memberships, wine clubs, and entertainment subscriptions.

You may want to follow some of the prescriptive advice found on Prudential.com to further assist you in better money management. For example, take advantage of technology to track finances by accessing free and low-cost apps that introduce greater ease and efficiency in budgeting and monitoring your finances. Also, consider consolidating accounts. Experts maintain that when your money is spread across several institutions, it can be difficult to get a clear picture of your finances. Not the most convenient way to manage a series of accounts, most people need only one checking and one savings account as well as just one or two credit cards. In short, fewer statements means less time spent engaging in the review and reconciliation process each month.

The same holds true in relation to investment accounts. Keeping all such accounts with a single custodian, with one account number for your personal investments and one for retirement accounts can make it easier to manage your finances. If you have several 401(k) accounts from past jobs, consider rolling them into one self-directed IRA. This should help lower account fees and reduce your paperwork. And you can further simplify your life by having all your insurance policies with one company, gaining eligibility for a multiple-policy discount or bundled premium payments, according to Prudential.com.

As you engage in your financial realignment, you may want to adopt the 50/20/30 rule as a guide: Target 50% of your income on essentials, 20% on savings and investment, and 30% on personal expenses. Of course, given the severity and duration of the pandemic and its direct impact on your household, you may choose to tweak your budget by placing more dollars, say, in the savings bucket.

Exantus told V-Summit attendees that it was critical to build up their “Financial Freedom Fund” – his term for the six to eight months in emergency dollars you should sock away to cover expenses. Just as critical, he says, is the development of a plan for multiple streams of income – especially given the unpredictable nature of today’s job market — and income-protection vehicles such as life and disability insurance.

Joyce believes that individuals – especially African Americans – need to develop a mindset to not only manage through the pandemic-induced crisis but prepare for the next economic calamity. In his practice, he counsels clients through a four-step process which fuses practical strategies with behavioral finance.

First, clarify who controls your finances. “If you think it’s your boss, the economy, or the man in the White House, you will not be intentional in controlling your money,” he says.

Secondly, develop a posture of social indifference. You should not be focused on the financial status of others that you develop a deleterious “keeping-up-with-the-Joneses” mentality that can derail your finances.

Next, gauge your risk tolerance. Asserts Joyce: “You have to take some level of risk to build wealth through investment.”

Lastly, engage in money conversation with your family – a practice that African Americans have historically not been involved with. By doing so, Joyce says there must be transparency about mistakes and remedies so families can devise a financial crisis plan in case of another economic upheaval.

Remember: The biggest lesson from 2020 is that you must be prepared for anything.    

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