Eugene is the Founder of The Litvak Team @ Compass — one of the top producing and largest teams at Compass.
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I’ve been involved in business coaching with entrepreneur and author Keith J. Cunningham for more than four years now. In this particular coaching paradigm, the heads of 14 businesses from across the country and globe gather as if we were multimillion-dollar investors and board members in each other’s businesses. Keith sits as chairman of each board, and we present a full board package inclusive of financials, state of the union, summary of last trimester and update on the major outcomes we’re working toward.
This group represents about 200 years of collective experience. In our discussions, it has become abundantly clear that, when it comes to the post-pandemic economic outlook, the prevailing opinions line up as two bookends on a spectrum. There’s the conservative viewpoint that even when COVID-19 eases up and restrictions are lifted, the economy will have a tough time recovering from the withdrawal of activity, unemployment and so on. This could lead to a recession, even a depression, for three to five years or even longer.
The other bookend is far more optimistic. This is, after all, not a natural-born economic crisis. It’s a health crisis. The optimists believe that once all stay-at-home orders are lifted, things will ramp up and head back toward normal over, say, two to six months. Of course, there will be changes in how we live and do business, but overall, this school of thought believes the economy will bounce back.
While many people fall between the two extremes, the thoughts shared during our meeting are reflective of the population at large. From a financial perspective, the key differentiator among the two sides is their thoughts on what to do with cash. The conservative side says this is not the time to invest, but a time to protect your cash at all costs. Of course, the general rule of thumb is that you should have six months’ to a year’s worth of living expenses saved in cash — not stocks, mutual funds or cryptocurrency, but cash in the bank. This is your minimum safety net, and the economic conservatives say now is the time to preserve that amount and any additional incoming cash.
The economic optimists, on the other hand, point out that we’re currently seeing the best investment opportunities available in over a decade. The stock market is on sale. Crypto is on sale. And while it’s not a time to invest every single penny, the optimists think you should take advantage of the unprecedented opportunity.
My take is that you have to be careful and find a balance. Don’t put all your cash under the mattress, because there truly is a lot of opportunity. At the same time, don’t be reckless and go all in without leaving yourself a safety net. You and your financial advisor have to decide what serves your goals and outlook. Are you betting the market’s going to deteriorate further, and there’ll be more opportunity later? Or are you betting that we’ll soon be on the road to recovery?
Whether the economy rebounds quickly or slowly, I am passionate about the two critical financial actions everyone should be doing on a regular basis: budgeting and saving.
Budgeting
Never has there been a more important time to actively budget your money, both in your business and your personal life. For a business, your three most important financial tools are your profit and loss statement, your balance sheet and your cash flow statement. If you’re not measuring and monitoring these three instruments, you’re basically flying a jumbo jet blindfolded.
In the plainest terms, a budget is simply a target of how much money you’re bringing in, how much you’re sending out and where/how. Begin by reviewing your spending over the last six months to a year and classifying your spending into buckets. You can be as top-line or as granular as you want to be. For example, you can budget and track all of your food spending under one total, or you can break it down into groceries, dining out, deliveries, etc. I’m a drill-down kind of guy. I’m energized by the clarity and detail. That said, the best budget is the one you’ll engage with long-term without being overwhelmed.
Mint.com is a free, easy-to-use app that collects your banking and credit card information and helps you create and monitor your spending budgets. For a business, I find QuickBooks to be a great, cost-efficient tool. Once you’ve teed up your categories and spending limits, start checking in weekly to see how you’re doing, and course correct as needed. Ultimately, budgeting your spending will become a habit, and you’ll only need to check on it monthly.
Saving
I want to invite you to impose a savings tax on every dollar you earn. We all know we should be saving, but most of us tend to live on the money we make and save whatever is left over, if anything. We need to do this in a different order: Save first, as if it were a tax, and spend what’s left. Pick a target percentage (that could be as little as 3% or as high as 50%. How fast do you want to retire?), and transfer that amount from every paycheck or commission directly into savings.
Take a minute to Google “a penny doubled every day for 30 days” to remind yourself of the amazing power of compounding. Once you’ve accrued your six- to 12-month nest egg, it’s up to you and your financial advisor to allocate your assets depending on your short- and long-term goals.
While these might seem like remedial concepts, it’s surprising how many successful businesspeople aren’t budgeting and saving as they should — and for a long time, I was one of them. These are critical actions that back your spending and earning decisions with powerful intentionality. No matter the economic circumstances, budgeting and saving will always serve you and set you up for an optimal financial future.
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