In volatile times, understanding your finances is more important than ever

Brandpoint (BPT)

(BPT) – Wild swings in the U.S. stock market marked the past weeks as the nation reeled from the effects of the global COVID-19 pandemic, oil price wars and trade disputes, causing havoc to Americans’ finances.

In March alone, the Dow Jones Industrial Average had the five biggest daily gains and five biggest falls of its 135-year history as governments around the world responded to the outbreak, according to a March 17, 2020 BBC article.

Amid this market turmoil, it’s understandable to feel uneasy about your current finances as well as your long-term and retirement savings. Prudential research shows most consumers aren’t prepared for an unexpected financial hit. In fact, 54% of respondents in our recent survey on the impact of COVID-19 said they wouldn’t be financially ready for an outbreak that limits their ability to work for a few weeks.

The federal stimulus package that was just signed into law gives a much-needed boost to individuals and the economy. But many people still face the dilemma of meeting immediate needs while trying to figure out what to do about long-term goals.

Should you change asset allocations in your retirement or investment accounts? If faced with a financial hardship, can you take an early withdrawal from your 401(k) or IRA, or tap into life insurance? If you’re close to retirement or you just retired, you may be wondering about alternatives to preserve your savings.

In times like this, staying informed and seeking good counsel on financial matters is invaluable.

“The best solution to calming financial fears and creating a plan is to better understand the nature of the problem and the solutions available,” says Brad Hearn, president of Prudential Advisors. “Crisis or not, improving your financial literacy is crucial to achieving your short- and long-term goals.”

To improve your financial literacy, Hearn suggests the following:

  • Learn the finances of “Me, Inc.” Since many of us are currently forced to spend more time at home, perhaps now is a good time to take a close look at your finances.
    • Get a handle on your budget.
    • Consider how much you’re spending and how much you’re saving.
    • Understand your own personal money flow like you would a business.
  • Recognize that our finances can affect our overall well-being. A 2019 Prudential study found that 59% of workers who use financial wellness programs consider their overall mental health “good.” But that drops to 55% for those who do not use financial wellness programs.
  • Learn more about how financial systems work — that can help you better understand your own finances. As much as possible, try to make financial decisions objectively and remove emotions from the equation.
  • Talk to someone. A variety of resources is available to us all if we just look around. Tax professionals, financial professionals and accountants are certainly sources. Also consider financial wellness programs offered through houses of worship, credit counseling services and others. These can help you navigate common questions such as:
    • How much should you set aside for an emergency fund?
    • How long do periods of market volatility normally last?
    • How can you build a long-term financial plan that prepares you well for the future?

No matter who you rely on for financial advice, your goal should be to create a solid foundation by creating a holistic financial plan able to withstand future disruptions.

Prudential Advisors is a brand name of The Prudential Insurance Company of America and its subsidiaries located in Newark, NJ.