- Preston Cherry, a certified financial planner and the founder of Concurrent
Financial Planning , and Kelly Lannan, the vice president of Fidelity Investment's Young Investors for Personal Investing, joined Business Insider's Tanza Loudenback for theMaster your Money Live Digital Bootcamp. - They talked about creating a flexible, values-based budget, identifying personal attitudes and beliefs about money and staying motivated during difficult or uncertain times.
- We've turned the experts' advice into a toolkit for navigating your way through financial ups and downs.
- You can watch the entire video from the event here.
Our plates have been full of challenges this year, many of them financial.
To discuss strategies for navigating these difficult times, I hosted a conversation between Preston Cherry, a certified financial planner and the founder of Concurrent Financial Planning, and Kelly Lannan, the vice president of Fidelity Investment's Young Investors for Personal Investing for the Master your Money Live Digital Bootcamp.
Cherry and Lannan offered strategies for mitigating the financial consequences of the pandemic and talked about how people could maintain control over their money right now.
Here are five steps to take.
Build a flexible budget.
A budget isn't just a nice thing to have — it's a necessity. Start by tracking your money to create a visual representation of your monthly cash flow before setting any limits.
"I would say that the first step — I'm always surprised at how many people either discount this or put this off or just don't know — is really being honest about how you're spending your money," Lannan said. "You have to know how much is coming in versus how much is going out on a monthly basis."
Gather all your bills and credit-card and bank statements, and list each expense you have. Then write down how much money you bring home every month. If it's variable (say, because you work on commission or as a contractor) write down how much you were paid for each of the past six months so that you can come up with an average.
Make sure that your expenses — the bills you must pay to have shelter, food, and healthcare — are covered by your income. From there, you can start adding in discretionary costs, like dining out, shopping, streaming subscriptions, or a gym membership.
"It might sound simple, but to me that's the very essence of what it means to start thinking about a budget," Lannan said, referring to tracking your spending. "That term doesn't have to be so scary, but if you don't take that step back and evaluate this, you're never going to be able to move forward."
Flexibility is important, Lannan said. When you know the handful of expenses you absolutely have to pay each month versus the ones that you can cut back on, you can be nimble if your income takes a hit.
Understand your financial behaviors.
Uncovering why we do something can be just as consequential as the action itself. Emotion is embedded in money, whether we recognize it or not. From childhood onward, our financial behaviors are shaped by what we experience.
For instance, if someone grows up in a household where money isn't discussed openly, it could lead them to avoid talking about money in their adult life, ignore bank statements, and refuse to meet with a financial advisor for fear of the unknown.
"In terms of our beliefs about money, the most important thing is that you can work to change it," Lannan said. "It's like building a muscle." It's as though you wanted to run a marathon, she said. Most people can't just decide today and run tomorrow. Getting in shape requires training and practice, just like learning to change your beliefs and feelings about money requires a similar effort.
"Yes, we might feel uncomfortable," Lannan added, "but if we don't push ourselves, if we don't continue to harness that muscle as if we are running a marathon, we're never going to actually be able to grow with our financial selves."
Cherry said you have to be willing to identify a feeling or an attitude about money and the courage to decipher what it really means. You can do this by thinking critically and honestly about financial decisions you've made recently, and how they made you feel.
"The first step is acknowledging how you feel about your money," Cherry said, "and then actually working to put together a step-by-step action plan — how to grow from those original beliefs to something more."
Spend and save intentionally.
A budget should be a representation of your values and goals. It should provide a clear picture of where your money needs to go for you to live well — to keep a roof over your head, food on the table, and cash in a savings account. It should also help you enjoy today and plan for tomorrow.
"Let your life lead your money — that's the first thing," Cherry said. "What is it that you aspire to do? What do you value? What are your goals? Let's start there. Then the money is not necessarily a second. It's a complement; it's a partner."
Creating an intentional budget or larger financial plan often isn't the difficult part. It's following through when roadblocks arise.
Cherry has developed a three-step framework that he recommends to clients who feel they're in financial distress. It's called the three A's: Admit where you are. Acknowledge your feelings and forgive yourself. Take action.
"You can't take action without the first two," he said. You have to admit where you are, truthfully, then acknowledge and process your feelings about it. Only then can you move forward.
Control what you can.
You may be the architect of your own life, but events such as a recession, layoff, or health crisis are out of your jurisdiction. Still, they're bound to happen.
"First of all, uncertainty is certain," Cherry said. "It certainly is going to happen. It's going to always be there. There are different levels of uncertainty. We're dealing with a big-time uncertainty right now with the pandemic."
Rather than be flattened by these events, both experts recommend doing your best to prepare for them with an emergency fund and flexible budget.
Lannan shared one of her mottos: "There's so much we can't control, but take what you can control and kick the crap out of it."
Lannan said the best money habit anyone can practice throughout their life is consistent automated savings.
"This is so important — to choose a set amount that is automatically coming out of your bank account and going into an account for things like retirement or some of those longer-term goals," she said. "The whole 'set it and forget it' mentality, of course you don't want to completely forget it, but there is a lot of power to automating."
The idea is to keep as much of a holistic view of your financial life as possible, she added.
"Let yourself be nimble in the near term, keep those habits up," Cherry said, such as saving for retirement. But don't be afraid to reduce contributions if you need more cash in your pocket right now.
"Manage the moment, because that's going to help you maximize the future," he said.
Practice gratitude.
There's no shortage of research on the power of gratitude. Being thankful for or appreciative of an element of your life — whether a person, privilege, outcome, or circumstance — has an outsized effect on well-being. There's no downside to finding the silver lining.
"We can talk about it during this pandemic, but it's really every day," Cherry said. "What are we most thankful for? I'll say it like this, too: Contentment is not settling. Contentment is finding your space and having gratitude about that."
To illustrate his point, Cherry referenced a scene from the "Rocky" series in which the title character tells his partner how excited he is to shower her with the trappings of wealth.
"And Adrian just simply said, 'You know, I want to be with you, Rock. And I want to see you be successful in the things that you love.' And that's it — that's gratitude," Cherry said. "Just asking yourself, 'Do I have what I need?' Am I living the life that I'm aspiring to? Do I have the opportunity to aspire?"
"As long as you're building toward your aspiration, that in and of itself is some gratitude."