Understanding The Cost Of Fear-Based Decision Making

As COVID-19 spreads around the globe and the weeks drag on with the U.S. economy in lockdown, businesses everywhere have come to a screeching halt. Your’s may be one of them. (As of this writing, several states are starting to turn the economy back on…but more like a dimmer than a light switch.) It may take a while for anything resembling “normal” to come back around.

It’s everybody’s first pandemic. And we’re all doing the best we can.

Most businesses can limp along for a little while with limited revenue, but no one can survive very long with no revenue! Bills, payroll, and rent still have to be paid. Economic aid packages may help (if you can figure out how to sign up for them), but they may not be enough. No matter where you fall on the shutdown spectrum, you’ve no doubt felt the impact of it all.

In the current circumstances, it is easy to be fearful. But don’t let fear dictate your future.

Just looking at the problem will always cause some level of anxiety. It’s human nature. The key to overcoming any crisis, though, is to glance at the challenge, but focus on the solution. To offer you a little perspective and hope, here are a few suggestions:

1. The better you can pivot, the more shock you can absorb.

Your solution may have to be as unique as you are. Many businesses have gotten creative just to survive. Restaurants and retail shops offer curbside pickup. Stores that do allow customers inside are doing all they can to minimize person-to-person contact: limits on numbers of shoppers, plexiglass shields at the registers, floor tape and signage everywhere. If a product can be delivered, they’ll gladly do it. Some manufacturers have retooled in order to make entirely different products to meet new needs.

2. Every business has places where they can tighten their belts.

Go through your books line by line and look for ways to cut expenses. What luxuries have you enjoyed that you can do without? What product lines or service areas can be put on hold? What subscriptions do you really not need? (Pro tip: Save some time and call your bank. Have them issue new cards for all of your accounts. When the numbers change and the old cards no longer work, the companies you’ve been doing business with will come find you. Then you can decide if they are “essential” or not.)

3. Borrow only as a last resort.

While it may be tempting to dip into your retirement as a way to stretch your current income, be careful. Make sure you consider all the costs involved.

a. It’s not “free money.” You will have to pay for what you spend today somewhere down the road. Even though it is technically “yours” to take whenever you want, you don’t get to decide what happens after you do. A 401(k) loan has limits and must be repaid. An early withdrawal will be taxed as income plus a 10% penalty. (Learn what the IRS says about it here.) So before you withdraw, ask yourself—is it really worth essentially borrowing money at a 35-47% interest rate?!

b. If you do, only take out the bare minimum. This money is for pure survival, not a TV. Use it to stabilize the “Four Walls” of your life: shelter, food, transportation (but who’s really going anywhere?), and basic clothing (but again, not going anywhere…those sweats will make it a couple more weeks.)

c. Your future self will thank you for showing self-control today. There will be an opportunity cost when the market rebounds–and it will–and your money isn’t there. As financial author and radio host Dave Ramsey frequently says, “the only people who get hurt on roller coasters are the ones who jump off.” Hang in there and ride it out.

i. After the “Black Monday” crash in 1987, the stock market fully recovered within two years.

ii. After September 11, 2001, the markets came to a sudden stop but were back to September 10th levels only two months later.

iii. The “Great Recession” of 2008 cost the market about 50% of its value, but after a couple of years we had regained all that was lost…and then some.

We will get through this!

And we may actually be better for it on the other side.

Your business may take a hit. It may have to restructure. It may even close today and reopen as something else entirely different tomorrow. No one really knows.

The best you can do is face fear with facts, adapt quickly, and ride out the storm.

And since we’ve got time on our hands, here’s a word from our old friend George Bailey. He faced a financial crisis one time too:

If you’ve got questions, we’re here to help. Write to us or give us a call: 888-207-6747.