How to manage your money during a crisis

We’re in the middle of a lot of uncertainty right now — and on top of the stress and anxiety related to the coronavirus pandemic itself, many people are also worrying about unemployment, financial insecurity and a lengthy recession. As the stock market continues to drop, people are asking themselves whether there’s any way to protect their investments, savings and retirement funds.

As it turns out, yes. We reached out to three financial experts — Joe Saul-Sehy, former financial advisor and co-host of the Stacking Benjamins podcast; Sam Dogen, also known as the Financial Samurai; and Jason Moser, Senior Analyst at The Motley Fool — to learn more about how to manage one’s money during a crisis. These three experts offered insights on what to prioritize, when (and whether) to pull money out of the market, and how your age might influence your upcoming financial decisions.

Build, or prioritize, your emergency fund

Your first priority, in a financial crisis, should be to shore up your emergency fund. This might mean prioritizing cash savings over investments, at least temporarily. “If you’re worried about your job, the last thing you should do is invest more money,” Saul-Sehy says. “Start with the guideline that your investments are long-term money. If there’s even a hint that you’ll need it for the short term, build your emergency fund.”

A good emergency fund should cover six months of day-to-day expenses — though in times of recession or financial crisis, it’s often wise to have at least a year’s worth of cash in the bank. That’s a tall order for most of us even when times are good, which means we’ll need to think very carefully about our budgets, look for ways to save money on everyday expenses and consider taking on additional income-generating activities like side hustles.

If you qualify to receive a federal stimulus check, it might be a good idea to put the stimulus money straight into your emergency fund. If you need to use the money right away to cover urgent bills or expenses, go ahead — but if you were debating between spending your stimulus check on something fun or saving your stimulus for the future, saving the money might be the better move. For more information on COVID-19 economic impact payments, including whether you are eligible for a stimulus check and when payments will be distributed, visit the IRS’s Economic Impact Payments FAQ.

On the subject of government benefits: It’s also important to know what financial resources are available to you if you become furloughed, get your hours cut or lose your job. Unemployment resources and requirements vary by state, so check your state’s Department of Labor website for more information. In many cases, you’ll be able to receive unemployment benefits if you have a job but are not currently earning any income (furloughs, zero-hour schedules). You might even be eligible for some benefits if you’re working significantly reduced hours. The recently passed CARES Act also makes Pandemic Unemployment Assistance available to some gig economy workers, freelancers and sole proprietors, so research what you are entitled to receive and set aside the time to file a claim. The U.S. Department of Labor has an Unemployment Insurance FAQ to help get you started.

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Continue making retirement contributions

Once your emergency fund is in place, it’s time to start saving for retirement — and, if possible, consider maxing out your retirement contributions. Why? Because the money you put into 401(k)s and IRAs comes with huge advantages, from tax benefits to matching employer contributions. Plus, if you leave that money alone, it has the chance to grow considerably over time.

“I strongly believe everybody should be maxing out their 401(k), IRA, Roth IRA, and other investment plans in this market,” Dogen advises. “People must get in the habit of maxing out their contribution every year. Over a ten-year period, I think most people will be pleasantly surprised with how much they end up with.”

Make 529 contributions if your kids are still young

A lot of parents are wondering whether they should still be making contributions to their children’s 529 plans. If your 529 investments lose too much value, does that mean your children won’t have as much money to put towards their education? Is it better to save college funds in cash?

If you already have money invested in a 529 plan, it’s a good idea to leave it where it is — even in a bear market. (Remember: pulling cash out of a 529 plan early incurs a 10% early withdrawal penalty, and you’ll have to pay taxes on your withdrawal.) Whether or not you should add more money depends on how many years you have before your children will be ready for college.

If your kids are still young, keep adding money to the plan. Moser even suggests increasing your contributions, if possible. If your kids are closer to college-aged, you can continue to invest in your 529 to get the tax benefits, but you should also start setting aside money in cash to protect it from market fluctuations. If the market is down when your child matriculates, you can use the cash to fund college expenses until the market strengthens  — and if you don’t have enough cash set aside, remember that there are many ways for parents and children to work together to fund a college education.

If you’re still young, invest with a growth mindset

“Investing is not a one-size-fits all thing,” says Moser. “You have people who are younger, who are focused on growing their wealth and preparing for retirement later in life, and you have people who are older, who are closer to retirement, and they need to focus on protecting their wealth.”

This means that if you still have a few decades before retirement, now is the time to invest in your future — literally. If you already have your emergency fund in place, consider maxing out your 401(k), your 403(b) and/or your IRAs. If you’ve already maxed out your available retirement vehicles and still want to put money in the market because stock prices have dropped,, consider opening a personal brokerage account.

What you usually shouldn’t do, at this time in your relatively young life, is sell. “A lot of people get very scared at the idea of being invested and seeing that their money has lost value,” Moser explains. “You haven’t lost anything until you’ve sold, and the longer you invest the more you see the ebbs and flows of the market.”

If you are preparing for retirement, protect your finances

If you are approaching retirement, your investment strategy needs to change from what Moser calls a “grow-your-wealth mindset” to a “protect-your-wealth mindset.”

First, you’ll want to ensure that you have enough liquid cash — that is, money that isn’t tied up in the stock market — to cover your day-to-day expenses during extended market downturns. Why? Because if you can pay for your everyday needs with savings account money, you won’t have to sell your investments at a loss.

“If you are that close to retirement and you don’t have that liquid cash to begin with,” Moser says, “it’s time to look at your situation and ask yourself what you have to do to achieve that cash position.” One way to increase your liquid cash is to continue working. You could also sell an asset, like a house or a car, and downsize into a smaller home, move to a more walkable neighborhood or consider multigenerational living. (None of these is simple or easy, of course.)

If you do need to sell some of your investments to cover the costs of your retirement, Moser has two suggestions for you. “Sell some of the losers in your portfolio, or harvest some of the gains from your winners.” In other words: either sell the stocks that are doing the worst, because they’re less likely to help you in the long run, or draw from the gains from the investments that are doing the best.

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The main thing to remember is that, in a bear market, your goal is to keep as much of your money in the market as possible — so you can reap the rewards when the market turns bullish again. This strategy applies whether you are just getting started with investing or beginning to think about your retirement, so keep that in mind as the market continues to fluctuate. Stay focused on what you’re working towards, whether that’s a year-long emergency fund or a maxed-out IRA, and don’t let the current financial crisis keep you from pursuing your long-term financial goals.