What is a black swan event? And why is it important?
A black swan event, a phrase commonly used in the world of finance. … are events that are unexpected and unknowable. The term was popularized by former Wall Street trader Nassim Nicholas Taleb, who wrote about the concept in his 2001 book Fooled by Randomness.
Wake Up Call
The Covid-19 virus, also known as CoronaVirus, should be a wake-up call for all of us. It is a Black Swan event. No one saw it coming, but it was bound to happen. If it wasn’t a virus it would be something else that had a catastrophic effect on the world. About every decade something happens that has a big impact that changes the world. Sometimes it is man-made and sometime not. In 2008-2009 we had the Great Recession and the housing crash that was felt world-wide. Before that it was 9/11, in 2001, something that changed air travel and politics forever. I could go on and on, identifying events that had major impact on lives, things we weren’t prepared for.
We don’t know what is coming, but we do know something is, something that could wipe us out financially.
This time it is the CoronaVirus.
In late March, at the time this is being written, the Dow Jones average dropped 8500 points in the first 3 weeks of March and had its biggest one day drop since 1987.
“A record 3.3 million Americans applied for unemployment benefits last week, the Labor Department said Thursday, as restaurants, hotels, barber shops, gyms and more shut down in a nationwide effort to slow the spread of the deadly coronavirus.
Last week saw the biggest jump in new jobless claims in history, surpassing the record of 695,000 set in 1982. Many economists say this is the beginning of a massive spike in unemployment that could result in over 40 million Americans losing their jobs by April.” 3 million
At the same time, Magnify Money notes that “29 percent of households have less than $1,000 in savings”
The government passed a $2 trillion stimulus bill, to rush out checks because people have no savings.
We Put off decisions
Don’t let this event go by without taking action. If you have 3-6 months in savings for emergencies, congratulations. If you are one of the many that have little to no savings, make a decision to get your finances in order. Make a commitment to yourself and others that you won’t let yourself be unprepared for the next crisis.
Take action
Make a decision to live below your means. Here is a good rule of thumb.
- Save 10% of your income
- Give 10% of your income to charity
- Live on the other 80%
Develop a budget if you don’t already have one. Do this by recording your monthly expenses. Simply record in Excel your monthly payments. It doesn’t have to be exact. Car insurance payments are often twice a year, so make an estimate for the monthly budget. Don’t make this a chore. A good estimate will suffice.
Take a look at how much you spend each month and compare it to your income. If the expenses exceed the budget, determine what you can cut right now and do so.
Get a new routine
The CoronaVirus has changed our lives in many ways. One is which is our routine. If we are still working, we are doing so from home. Our spouse or partner may be working from home as well. We may have children or grandchildren that are home from school or college. All of this is very disruptive to our normal routine.
We are most productive when we have a disciplined routine; get up at a certain time, workout at a certain time, read/think at certain time and that routine is gone and may be gone for weeks or months. With that in mind we need to develop a new routine.
- If you normally go to the gym, develop a routine at home. Dust off that old treadmill in the basement. No treadmill? Walk the basement stairs 25 times. Or put 4 boards on the floor and step up to them for 20 minutes. Learn Tai Chi by watching a video.
- Or if you didn’t have a workout routine, start one now. Take your previous commute time and dedicate it to workout.
- Let’s be frank, getting ready for work could take 45-60 minutes each day. While I encourage good hygiene, getting ready for the day now will take a lot less time. Dedicate that time to something useful.
Focus on the positive
There is a lot of news out there. Most of it negative. The stock market has plunged, there is record unemployment. You may be worrying that your job is next. Concerned for the health of your loved ones, especially the very young and very old. These are all valid concerns. Determine what items you can take action on and those that you can’t and focus on the actionable ones.
We will get through this. Just make sure you are prepared for the next Black Swan.