Whenever life brings you into a period of uncertainty, the best financial move you can make is to move into “Storm Mode.” Job loss? Storm Mode. Recession? Storm Mode. Relocation? Storm Mode.
What is Storm Mode?
Storm Mode is a method of focusing your finances on protecting what is most important, so that you can reduce the financial impact of a period of uncertainty on your family.
I grew up in Charleston, SC, which is the hurricane heartland. In fact, the year we moved to Charleston, the city received a direct hit from Hurricane Hugo, a Category 4 storm. Compared to the devastation around us, we were fortunate that our home had only one tree fall on it. Otherwise, our family emerged unscathed: everyone in the family was safe and uninjured; none of our critical documents or heirlooms were destroyed; and we had ample clean water and food while we waited for utilities and the city to return to order. What made that possible? Storm mode.
We had days of warning to prepare for Hurricane Hugo. The windows and glass doors of the home were reinforced. We filled bathtubs with clean water and kept canned food in the pantry. Then, we packed up – with our family albums and paperwork included – and we evacuated inland to safety. We saw the storm coming. Although we were powerless to stop the weather, we took decisive action to reduce the storm’s impact on our family and to protect what was most important.
Likewise, you’re entering – or perhaps are already in – a personal ‘storm.’ Forces outside of your control are changing your world, and it’s unclear what life will look like when the storm has passed. If you’ve officially been separated from service or if you are simply uncertain of the future of your role, it’s time for Storm Mode.
You have the benefit of seeing a risk ahead. That makes now the time to prepare to financially ‘weather the storm.’ No, you don’t need to store up drinking water. Instead, your Storm Mode is a call to direct your dollars to critical needs, so that you can remain financially resilient during this period of uncertainty.
How does Storm Mode work?
Storm Mode prioritizes keeping cash on hand to support critical expenses while strictly limiting discretionary dollars. Storm Mode increases your cash savings, reduces the total cost of your lifestyle, and ultimately aims to meet your obligations while avoiding new debt.
Why prioritize cash? First, because you can’t pay your rent/mortgage with a credit card. Second, because living off of credit cards and other forms of debt would cause this period of uncertainty to haunt you for months or even years after the storm has passed.
Why slash expenses? Simple: The less your lifestyle costs, the less money you need to pay for it. The less money you need, the longer the money you have will last. The longer your money lasts, the less likely you are to need to borrow money from someone else.
When you see financial uncertainty ahead:
· Start by directing every extra dollar on-hand to your high-yield savings account. Found $20 in an old wallet? Make a deposit.
· Strip down your monthly spending to only what is critical: rent/mortgage, utilities, groceries, medications, transportation, childcare, and monthly debt payments. Cancel streaming services. Put the bottle of wine back on the shelf. Stop eating out and ordering delivery.
· Look for opportunities to reduce your expenses further. Use grocery apps for coupons and rebates. Join your local Buy Nothing group and shop neighborhood thrift stores instead of buying new. Trade babysitting with friends instead of hiring a sitter.
· Look for opportunities to create income, however small. Sign up to drive for a ride share or food delivery service. Offer babysitting or lawn mowing to neighbors. Sell your old rug on Facebook Marketplace.
Many Americans don’t have emergency funds of any kind, or they have less than 3 months of critical expenses in reserve. Families with little to no cash available have to consider more extreme options to keep the finances afloat.
If your total non-retirement savings are already very low:
· Consider reducing or pausing your retirement contributions to add more cash to your paycheck. ONLY make this change if you are 100% committed to directing the extra cash to your savings account. Do not let the higher paychecks turn into additional Amazon purchases, or you could end up in debt with diminished savings for retirement.
· Consider making minimum payments on your outstanding debts. ONLY make this change as a last-ditch effort to ensure that you can cover your critical living expenses. This is not extra cash to fund baby shower gifts or shore excursions on the cruise you couldn’t cancel.
· Consider taking a short-term loan from your spouse’s retirement plan. ONLY take this step as a last resort to generate cash for your critical living expenses. It’s important to know that any loans must be repaid immediately if/when your spouse separates from service, which is why this is a high-risk option only to be chosen when you are in dire straits.
When (and how) does one move out of Storm Mode?
The metaphorical storm has passed when your income is replaced or is no longer at risk. Roll back your Storm Mode changes from last to first.
· If you emptied your emergency fund, refill it to a Starter Emergency Fund: one month’s rent/mortgage or $1,000, whichever is more.
· If you had to reduce your monthly debt payments or take a loan from a retirement plan, return to aggressively paying down your balances. Make sure your debt payoff plan includes any other new debt.
· If you paused or reduced your retirement contributions, start contributing again up to your employer’s full match (and eventually higher). You don’t have to do this all at once; you can start at 1% and increase as you slowly adjust to a changing paycheck.
· Rebuild your Emergency Fund to 3- to 6-months of your family’s critical expenses in your high-yield savings account. Now that you’ve seen the value of having cash on hand for an emergency, get that safety net securely in place.
· Add the comforts of life back into your monthly budget. With your emergency fund in place and your debt under control, you can enjoy some creature comforts knowing that they aren’t at the expense of your family’s financial security.
Whether you’re in the middle of your storm or seeing the potential for stormy weather on the horizon, there is peace of mind to be gained by putting a plan in place to take control where you are able. Storm Mode is that plan.
By prioritizing your cash on hand to support critical expenses and strictly limiting discretionary dollars, you are protecting what is most important for your family. You’re storing food and clean water. You’re boarding windows and piling up sandbags. You’re taking decisive action to provide for your family’s needs while doing everything in your power to reduce the impact on your family’s long-term plans.
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Cassie Panzenbeck, MBA, AAMS™, CPFA®, CFP®
Financial Advisor
Raymond James | 360 Concord St, Suite 210, Charleston, SC 29401
843-720-3526 Direct | 202-759-6071 Cell | 855-790-0927 Fax | Panzenbeck.com
Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC