It's been a few months of uncertainty. Lockdown, job losses, salary reduction, quarantine, working on your PJs...
However, I truly believe that we will come out of this situation stronger. I also think that this will teach us some valuable lessons, particularly regarding our personal finances. They may seem common sense but it's a reality-slap to where we were heading as a society.
1. Streams of income
I'm sure we all know someone that has been let go during this period. That has got a salary reduction or sent on forced unpaid leave. That could be a friend, a relative, a colleague or even yourself (I hope that's not the case).
This sucks! I know. But it's also understandable as everyone is in survival mode, including companies, and that means reducing costs.
We can't control whether a company decides to keep us employed, pay us full salary or make any adjustments. That's out of our hands. What we CAN CONTROL is the number of streams of income our lifestyle relies on.
Of course, if all our lifestyle depends on just ONE salary, then when this things happen we struggle.
How can you get multiple streams of income?
There are dozens of things you can do, even if you are a full time employee. Don't be that person that says: 'Yeah but I work 6 days a week 7 am to 10 pm...'.
Three ideas (of many possible ones):
Freelancing - there are platforms like Fiverr and UpWork where you can show your skills there and people pays for your time and services. Just yesterday, I paid someone I have never met to do a logo for me.
Online shop - we are connected online more than ever. An online shop will give you a digital platform for you to get an income. You can start by selling things from your place that you no longer use (clothes, furniture, that treadmill under the pile of clothes).
Income from investments - first of all, there's a misconception that you need millions to start investing. That is not true. Of course, to get a decent income from investments you may need a big investment pot at some point. However, even a ten thousand dollar investment that gives you a fixed annual return of 10% will give you an income of USD 1000 a year. Probably not enough to fund your lifestyle but that's a start in it's passive. (Book a call with me if you want to find out what investment options offer this type of fixed income).
My suggestion is to start adding streams of income little by little. At one point, you will realize that your salary does not represent your main income anymore!
2. Emergency fund
An obvious one but more important than ever nowadays.
Last year, on some of my regular posts I was sharing that the average American person did not have in their bank account savings to fund a USD 400 emergency. That's scary!
This situation is not just Americans, so many people around the globe do not have savings for rainy days. Different factors involved in each country but this is a concept that MUST apply to everyone. Hopefully after we pass this situation, everyone will focus on having this covered.
So how should your emergency fund look like?
First let's talk about how much you need as we all have different lifestyles, personal circumstances, and needs. It should be based on your monthly expenses (preferably of those that you MUST paid even during rough times. Those may include: rent, food, kids education, medical costs, loans... Depends on you).
Ok, now that you know how much your monthly 'mandatory' expenses are, then you want to make sure that you have enough to cover that same lifestyle for a couple of months.
How many months is enough? Well, this depends on your situation -whether you are single, have a partner or financial dependents- but you can follow the next guideline:
The next important elements of your emergency fund are: access and security.
Let's talk about access first.
This money, as the name implies, is for emergencies so you want it to be in a place (hopefully in a high-yield account although with the current market situations, those accounts give pretty much nothing) where you can have quick access to it.
This means that you should NOT invest this money into a variable return investment because if 💩 hits the fan and you need to take that money while markets are down (like now), your emergency fund will decrease in value.
Now, let's focus on security.
It's important to keep this separated from your current account. A designated account just for emergencies. Also, as an expat, my suggestion is to have this rainy-day fund in an international account. You never know if tomorrow you will need to leave your current country and if all your emergency fund is in a local bank that requires you to go in person to transfer money out, then this will create more problems.
I personally use an international account that allows me to do everything online and I keep most of my emergency fund in USD. Send me a message on LinkedIn if you want to explore what available options you could use for your emergency fund if you are too a global citizen.
3. Have a strategy
Finally, if you have these two elements covered then we can talk about finding opportunities during current market conditions. There are plenty!
Most people I speak to every day are unsure on where to put their money to work for them. I get approached a lot these days with questions like:
Which stock/funds to invest in?
Do you think I should invest now or wait more?
Is it safe to invest now?
And a couple more questions but I don't have the right answer if I don't know what your goals are, whether you have the previous areas covered. If you are just looking to make some quick money/returns during this period, I think it's funner to go to Macao.
I'm not saying people can't make money day trading. However, those who do get constant returns in that profession is because that's their FULL TIME JOB. Still, most of them get it wrong. Just in the first quarter of 2020, Ray Dalio's hedge fund -Bridgewater- which is the largest hedge fund worldwide, lost 20% during Q1.
So, how can we benefit from this period if even experts make mistakes?
By having a long term approach and benefiting from the dollar-cost average strategy.
This is a bullet-proof approach if you are looking on a long term strategy for your goals.
As Warren Buffet says:
It's not timing the market. It's time IN the market.
If you want to learn how to create a strategy to hit all your money goals (retirement as an expat, saving for a property overseas, international accounts or anything else to become #FinanciallyFit), feel free to book a 15-min discovery call with me.
Thanks for reading and feel free to share this with friends, colleagues, clients, or anyone you think will benefit from reading it.
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