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How To Make Good Money Moves in Hard Times

What to do when finances are strained and you are faced with no good options

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Hard times mean hard decisions. You may have to do things you would never opt for during better days. But which actions are the least awful? Which are the best of the worst? I asked experts about inadvisable money-related moves people might make nowadays, plus the not-as-bad recommended alternatives.

Bad move: Stop paying your monthly bills 

Better move: Stop paying, but contact creditors

It's never a good idea to go radio-silent on the people to whom you owe money. Now is no exception. One bit of good news: Following the oubreak of COVID-19, many lenders have said they would grant borrowers relief in the form of paused interest and payments (federal student loans) or the ability to miss a payment (some credit card and mortgage lenders). Whether or not your creditor has made such a statement, get in touch online or by phone to report that you're having an issue and to ask for a work-around, says Carolyn McClanahan of Life Planning Partners in Jacksonville, Florida.

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Bad move: Hoard a stack of cash in your home

Better move: Keep a few weeks of money on hand

The safest place for your money is in a bank, not under your mattress. Plus, if you're self-quarantined at home and have enough money to pay bills, you'll need it in your checking account to do so. McClanahan, who has endured a number of hurricanes, keeps about $800 in cash. “It's enough to get a few weeks of gas and groceries,” she notes.

Bad move: Make big life changes, such as retiring or moving

Better move: Take your time and think it over

During this economic downturn, if you still have a job, you should try to stay engaged until you understand the financial situation and whether you have enough of a nest egg and income to retire, McClanahan suggests. As for moving, she says, a recession may mean lower home prices. That's great if you're buying — but not as wonderful if you're selling. “It depends why you want to move,” she says. “If all this stuff weren't going on and you could afford the move, would you still do it? If so, you've got your answer."

Bad move: Dump all the stocks in your portfolio

Better move: Get rid of some of them

We humans have two innate biases that can work against us financially, explains Stephen Wendel, head of behavioral science at the investment service Morningstar. One is a recency bias: We tend to believe that what just happened will soon happen again. The other is is a bias toward action: We just want to do something.

Combined, those two inclinations can be devastating at a a time like this. Let's say the markets drop 2,000 points in a day. You are convinced that the same thing is going to keep happening, so you sell. But instead of dropping further, stocks rally or remain stable over the following weeks.

If you're saying, “I can't take this,” it doesn't work for someone to tell you to do nothing, says Ross Levin, CEO of Accredited Investors Wealth Management in Edina, Minnesota. So you need to ask yourself if you can take a smaller action to make yourself feel better — such as moving 5 or 10 percent of your retirement account's stock funds into cash — rather than thinking you have to be either all in or all out of the market. “Binary choices — it's all or none — are usually the worst ideas,” he observes.

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