How to Make Money Decisions When the Future Is Uncertain - The Wall Street Journal

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Veronica Dagher

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• @VeronicaDagher
• Veronica.Dagher@dowjones.com

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Julia Carpenter

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• @juliaccarpenter
• julia.carpenter@wsj.com

July 17, 2020 12:54 pm ET

The economic shutdown that began for many this spring has led to layoffs, delayed goals, emergency account withdrawals and other painful financial challenges. With the coronavirus pandemic causing so much uncertainty in the world, some people are having trouble making financial decisions.

Many are unsure about investing in stocks at the moment, while others wonder whether to tap emergency reserves but are hesitating for fear that the health crisis drags on.

“We’re good at finding solutions for today, which is not always the best for finding the solution for the future,” said Meghaan Lurtz, professor of practice at the Institute of Personal Financial Planning at Kansas State University. “When we don’t even know what the time frame is, that really messes up our ability to decide: ‘Is this good for me now?’”

Here’s a guide to help you take action—even if that looks like holding still—and push past the fear.

Why do I feel paralyzed?

The uncertainty of this crisis and a lack of guidance on how to navigate it can contribute to feelings of stress that force many people to remain in stasis, said Suzanne Shu, a professor of marketing who studies decision making at Cornell University.

Many financial decisions—upping retirement contributions or putting money toward a savings goal—require people to look ahead to the future, maybe even opting to delay or sacrifice short-term goals in the service of longer-term ones.

“It’s this sort of fear that ‘there is this bigger thing out there that I can’t predict,’” Prof. Shu said. “There’s a fair amount of [scholarly] work that shows that in more uncertain environments, people are not willing to dip into what I would call precautionary savings, where they’ve built up a little bit of savings and nest egg.”

Activating an emergency plan can feel scary, she said, and some people might resist doing that so they can cling to optimism and a sense of control—until they reach a breaking point.

Within your household, work with your roommates or your partner to determine your own emergency threshold, whether that depends on someone losing work or dipping below a certain level in your accounts.

What steps should I consider if I want to make a financial change but don’t know where to start?

While the pandemic is unprecedented for everyone, it can still be valuable to speak to someone who has faced a similar financial calamity, such as a job loss. Not only will it be helpful to discuss your situation with another person, but you never know what advice you might get, says Elliot Pepper, a financial planner at Northbrook Financial in Baltimore.

Listing all the pros and cons related to the decision can also give you some clarity. Consider enlisting the help of a professional such as an accountant or financial adviser.

Break down the actions you need to take into small steps, says Mr. Pepper. For example, if you’re considering selling your house, you can start by calling a real-estate agent.

Tell a close friend or family member about what you’re planning to do so they can hold you accountable.

I’m sitting in cash, as the stock market scares me these days. How do I know when is a good time to invest?

Identify your short- and long-term financial needs, says Matt Saneholtz, president of Tobias Financial Advisors in Plantation, Fla. This can help determine how conservative or aggressive an investment strategy you can tolerate.

Right now, the markets are volatile. Although that can be unnerving at times, it isn’t unprecedented. Market activity notwithstanding, consider what your portfolio means in the overall context of your life, Mr. Saneholtz says.

For example, do you need money immediately, or is it earmarked for heirs? Do you have enough money saved in an emergency fund? Are you worried about job security? Do you foresee any new expenses or life events such as a child’s birth soon?

If money is needed immediately or in the near future, it’s important to keep these funds accessible and with very limited risk exposure, he says.

Remember that you don’t need to put all of your money into the markets at once, says Kathy Entwistle, a managing director at Morgan Stanley in Paramus, N.J. Rather, consider dollar-cost averaging, she says. This involves spreading your investment purchases evenly over time so that you buy investments at an average price that smooths out highs and lows.

I lost my job and can’t afford my rent. How do I know if I should move?

Let your landlord know about your circumstances, says Matthew Trujillo, a financial planner in Southfield, Mich. Landlords won’t always work with you, but sometimes they’ll allow you to miss a payment or two, which can go a long way to preserving cash while you look for a new job, he says.

If you’re considering trying to keep your apartment, take a hard look at your monthly expenses and determine how long you can afford the monthly obligation for rent. If you have cash in savings, do the math to figure out how long you can keep paying rent before your funds run dry, and decide whether you’re willing to take that risk.

About a third of U.S. renters have been protected by an eviction moratorium that covers properties with federally insured mortgages. But it’s set to expire July 25. If you’re worried about being evicted, see what relief your state or city might offer to renters, as many jurisdictions have added protections that will remain in place longer.

What if I’m afraid to make the wrong decision?

Give yourself permission to be wrong, says Mr. Trujillo. This is easier said than done, but the fact is, “you aren’t going to nail every financial decision you face in life,” he says.

Write to Veronica Dagher at veronica.dagher@wsj.com and Julia Carpenter at Julia.Carpenter@wsj.com

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