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Pursuing Financial Independence in a Plague

As I write this (3/15/2020, 6:23 pm):

  • Stock futures are down 5%+ (the maximum allowable amount)
  • NIH Director Anthony Fauci has suggested a 14-day national shutdown
  • America’s three largest cities have already instituted shutdowns, closing bars and restaurants and limiting gatherings to 50 people or less
  • Store shelves across America have been emptied by panic buying

To add insult to injury, wasn’t that a flesh-eating zombie I just saw running by my window?

OK I made the last part up, but things look pretty bad – probably because they are. But since I write about personal finance, I am not here to give you advice about hygiene, social distancing or speculation about infection rates.

I am here to provide a sober accounting for what this means to us financially, and to determine whether we can still pursue the path to financial independence even in the midst of a once-in-a-century plague.

First, The Bad News:

  • The stock market is down 20%, seriously denting our 401ks and hard-fought net worth numbers. Importantly, this decline does not represent a “short term dip”, but incorporates projected long-term damage to the economy after the plague has passed. It also seems like it could easily fall another 20% or more
  • Shutdowns will hurt many vulnerable groups, including hourly workers such as waiters, bartenders, theme park maintenance staff, etc. Even higher income groups like pilots will likely be furloughed
  • Anyone working in highly vulnerable groups, such as travel, cruise, or oil and gas, may see layoffs that last well beyond the point when the virus has peaked.

But, There Are Some Silver Linings:

  • All this MAY pass; I say MAY because other countries like Korea and China have gotten or are getting through it and are starting to get back to normal. For us to follow in their footsteps, we will need to take similar actions (draconian shutdowns, mass testing). If this happens, we should be no worse off than the countries that first encountered COVID-19.
  • Low interest rates will give some of us the opportunity to refinance and save money on our monthly mortgage payments; interest rates across the board may fall, although credit will likely be much tighter in a recessionary environment
  • There has been discussion of relief measures, including: an extended payroll deduction holiday; tax relief; mortgage relief; extended unemployment insurance
  • Perhaps most critical of all, people will feel less obligated to waste money on purchases made exclusively to keep up on social media: fancy restaurant meals, exotic travel, unique (and expensive) “experiences” and celebrations. In fact, many of these obligations will be or already have been banned, removing temptation completely.

SO, What Should I Do??

Everyone’s situation and appetite for risk is different, so it’s not practical to give one-size-fits-all advice. But I can certainly share with you how I am approaching this:

  • Investments and the markets: first of all, please: this is not an across the board “buying opportunity”; stocks may look cheap now, but who’s to say they can’t fall at least another 50%? Also, many companies are heavily leveraged in ways that are difficult to ascertain via publicly available data. Finally, some industries may permanently contract or have to deal with higher operating costs to prevent future virus outbreaks. So, although I am not panic selling, I’m hardly in a buying mood.
  • Cash: I am stockpiling cash as much as possible right now. I used to give every penny that came in from my W2 gig  and real estate investments to my contractor, who is renovating a vacation property for me. I put the whole project on “pause” this week to preserve cash. It may cost more to start it back up a few months from now, or his prices may come down (due to lower labor costs). I think it’s a wash, and I feel a lot better holding on to the cash ($40k) I was going to give him to finish the job.
  • Spending: I am also cutting spending, completely involuntarily I might add, since my most expensive indulgences (travel, fine dining, bar hopping) are no longer available. It’s a golden opportunity to save money in a minimal FOMO environment.
  • Real estate: also, probably not a good time to sell if you own (less money and less liquidity = lower prices). I would also be more careful before you invest. What is happening now is seismic… what if you buy in a market that is heavily dependent on industries facing a contraction (e.g. oil and gas in Texas). What if home buyers decide that new criteria (e.g., isolation, privacy, access to health care) that used to be insignificant are now suddenly critical?
  • Other opportunities: if there are opportunities to save money, even in the short term, take advantage of it. Skip paying your mortgage or property taxes for a few months if it’s permitted without penalty. Keep an eye on, and take full advantage of, government aid programs. Even if you don’t think you need them, better to save the cash now and invest it later (or simply pay back your obligations once this crisis has passed).

And finally, focus on the most precious investment you can make in this time of crisis: your relationships. I can’t imagine weathering this storm without support from my friends and family. It might be a good idea to give them a call, see how they are doing, or just lend your emotional support (or take advantage of theirs).

I’m the last one to say that money isn’t important: but I believe you can invest in yourself, your net worth, and your relationships without sacrificing any of them… in fact, I suspect that these act as a self-reinforcing pyramid. Take advantage of that dynamic and I think you’ll be stronger than ever once this all has passed.

What are you doing to survive financially and stay on the path to FI? Tell me about it in the comments below!

1 reply »

  1. For me, I’m fine in terms of savings and investments. It’s resources I’m afraid of. But like you said, the temptation to spend on unnecessary items has pretty much been removed. So there’s plenty of opportunity to save in case of a layoff or prolonged absence from work.

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