2020 dealt some harsh blows to the entire world. Under the weight of the Covid-19 pandemic, the US economy collapsed more quickly than in history. While the economy has recovered, the rebound has been terribly uneven. And people’s lives were thrown into total chaos. Health concerns bubbled under the surface for most of us, erupting into serious illness and even death.
Our work lives changed immeasurably. Some physicians were overwhelmed caring for sick and dying Covid patients. Other physicians had their clinical appointments grind to a complete standstill, resulting in a massive dip in earnings. Saddled with homeschooling and childcare challenges, other healthcare workers found their lives overwhelmed.
We’ve not seen anything like it in our lifetime. So when the pandemic started gaining momentum in early 2020, no one knew exactly how it would impact us. If there are any positives to be drawn from it at all, it’s that we’ve learned crucial lessons about risk management and resilience in the face of crises, personally and financially. When it comes to our financial health, there are three things that healthcare workers can do right now to protect against financial crises should anything like this happen again in the future.
#1. Protect Your Finances with an Emergency Fund
Do you have anything put away for those ‘just in case’ moments? We tend to think about common emergencies – a costly car repair bill or something going wrong at home, like a heating system needing a quick and costly fix. But what about a more significant emergency, like if your income dries up?
Data shows most people are one paycheck away from homelessness. While studies like that generally refer to very low earners, don’t think that the problem doesn’t apply to you. The phenomenon of lifestyle creep means that people’s expenses expand as their income increases, meaning their lives can be just as precarious as those who earn less. Plus, many high earners are reliant on just one source of income.
Take a look at your monthly spending, and compare it to your emergency fund – if you’re lucky or organized enough to have one. If your income suddenly vanished or got dramatically cut as it did so many of us during 2020, how many months could you get by? Most financial advice recommends an emergency fund that will cover three to six months of expenses.
However, I think one of the biggest lessons from 2020 is that this is quite simply not enough. If you can, aim for nine to twelve months of expenses. So many physicians assume their career is recession-proof. The pandemic showed all of us how dangerous this mindset could be.
An emergency fund is generally kept aside in cash. Liquid assets like stocks aren’t a good idea for your emergency fund because the chances are that when times are bad, the stock market may be at a low point as well. Selling stocks at a loss isn’t generally recommended, and if you don’t get back into the market, it will make it harder for your finances to recover after. So plan to keep your emergency fund in cash.
#2. Protect Your Finances with Adequate Insurance
We think about insurance as protecting our home, car, and health, but what it’s really doing is protecting our finances. Unexpected bills can be financially devastating and can set us back or prevent us from ever reaching our financial goals. Safeguard your finances with adequate insurance is absolutely vital.
The Covid-19 pandemic dealt many people a double blow. At the same time they lost their income either wholly or partially, many people found themselves ill and facing expensive medical bills for their treatment. And for many, Long Covid has kept them out of work for months, or they’re returning to work with significantly reduced capacity AND huge medical bills.
Healthcare workers are far more exposed to financial crises than the average worker, and hundreds of thousands have contracted Covid. This serves to illuminate the inflated threat posed to healthcare workers and their finances during a health crisis like this.
Covid aside, did you know that more than 25% of Americans entering the workforce today can expect to have at least one year out of employment due to ill health or disability? And that’s from a pre-Covid study, so you can only speculate about how those figures have changed. So it is crucial that to protect your finances, you make sure you have adequate health and disability insurance. To protect your family from loss of income, it’s also essential to obtain adequate life insurance.
You deserve peace of mind knowing your family will be taken care of. You deserve to know that should you be unable to work, either temporarily or permanently, medical bills will not destroy your savings. And you must know, if you are unable to work, you will continue to have an income.
#3. Protect Your Finances by Diversifying Your Investments
Another way for healthcare workers to protect their money during financial crises is to ensure that you have a resilient investment portfolio. Investments are there for future financial security, so treat them as such; don’t create unnecessary risk. When the value of your assets takes a tumble, don’t make rash decisions.
We’ve been through economic dips before – the financial world breaks roughly once every ten years. The average recession lasts 18 months, while recovery is usually seen within a year. Create a portfolio that allows you to ride out the low points by staying invested. Ultimately, it’s best to remain invested and ride out the inevitable stock market dips. Your investment portfolio will recover more quickly and easily if you resist the urge to sell when stocks are devalued.
Diversifying your investments can help create a more resilient portfolio in advance of any economic downturn. It’s a way to optimize return AND protect your investments. I suppose it works a little like the adage, ‘don’t put all your eggs in one basket.’ Spread your risk over several investments, and when one gets dropped, you have plenty more that are still safe. The loss or devaluing of one element of your investments doesn’t threaten your entire portfolio.
When certain areas of the market are in trouble, others may well be thriving. Consider your asset allocation as well. Rebalancing your asset allocation after a troubled year can make all the difference to the recovery of your finances, too.
Are You In Need of Further Advice?
Many physicians have been left reeling by the myriad challenges of 2020. If your finances need a hand recovering or you want to start protecting your finances today, schedule an appointment. I will help you make the right financial decisions for yourself and your family.
We will protect you and your family by building your emergency fund. I will help you choose the right insurance policies for you and your family. And together, we’ll create the most reasonable investment strategy where we put your money to work for you! Please contact me today and make an appointment. Let’s start building your financial security today!