Financial control amid COVID-19 is possible.
Things feel pretty out of control for many of us right now as we experience the changes in our lives brought on by this coronavirus. For our sanity, it seems vital that we control what we can and accept what we can’t, all while recognizing our responsibilities to society and humanity as a whole.
OK, I’ll step off of my moral high horse now.
Back to bucking…
Finances are personal, and accordingly, we DO have some control here. Everyone I know (except from what I can tell Jeff Bezos) has finances that have been adversely affected by this pandemic. In the best cases investment balances have dropped; in the worst cases, people have lost jobs and are left with no money to pay their rent or mortgage. Whatever your financial situation, we’re going to take broad strokes here to offer financial advice for everyone right now.
Let’s begin with…
Financial control for those who have lost jobs or income:
At the time of this writing, 22 million unemployment claims have been filed in the last month amounting to more than one in ten workers. The CARES (Coronavirus Aid Relief and Economic Security) Act was passed on March 27th providing far-reaching assistance for those who need it. Following are suggestions which this Act helps with:
- Seek income replacement.
- Watch for your stimulus check/deposit of up to $1,200 each.
- File for unemployment – these benefits have been increased and expanded, and will be available to a broader range of workers (including the self-employed).
- If self-employed or have a small business, consider also applying for:
- Payroll Protection Plan loan w/ your bank, and/or
- Economic Injury Disaster Loan.
- Note! Each of these is largely eligible for forgiveness.
- Identify your most basic monthly living costs.
- Housing – mortgage or rent
- Utilities – gas/electric, water, cell phone, internet
- Contact providers of above to negotiate payment help. There is unprecedented assistance available right now to pay these bills. Here are some suggestions:
- Contact your mortgage lender – The CARES Act protects those who can’t pay right now by offering forbearance (delayed payments) and suspended foreclosures. Be sure to fully understand the help that is available to you specifically.
- Talk to your landlord – There is protection for renters too. It’s likely that your landlord cannot evict you (depending on the state you are in and also the mortgage they have). Talk to your landlord to work something out: believe me, they do not want to evict you.
- Locate food assistance in your community. Many schools are offering curbside lunch pickup for families with kids. Check on food banks.
- Contact your utility companies. Also, look into utility assistance programs – there are a bunch of them.
- Car insurance is now discounted for most. Check with your insurer.
- Don’t forget about any other committed bills.
- Eliminate those you can (like Netflix or gym memberships)
- Negotiate others, like payments on consumer debt. Student loan payment deferrals are in place for most borrowers, but be sure to verify this for your particular loan(s).
- Protect your credit. Do not let your credit suffer from this. If you follow through on the above, then you should keep things straight. But nonetheless, regularly review your credit report as you navigate payment plans to ensure that you’re not unfairly penalized. It’s important to understand that the government and lenders also prioritize good credit health in all of this. It would do our economy no good to have tons of ineligible borrowers after this crisis. CARES Act was enacted in part to protect against this.
- Last resort…take a distribution from your retirement account. The CARES Act waives the 10% penalty on the first $100,000 withdrawn early from a retirement account. You may also arrange to pay any taxes owed on this distribution over three years. If you absolutely must tap your 401(k), consider taking a loan instead so that you’re committed to repaying yourself, with interest no less.
Financial control for those who fear losing their job or income:
- Identify your monthly living costs in total. Same advice as above but expanded to include all committed and largely unavoidable (unless you do something) costs like debt payments, subscription services, and memberships.
- Assess your emergency fund. View it as a multiple of your living costs from 1. above. How many months would these funds last you if used to pay the bills? Three to six months was the old recommendation, but only you can determine how much you might need. Do you have enough to allow you to sleep well at night? Are you being realistic? If not, stash some more away. You may need to tap that emergency fund to get the bills paid if you lose your job.
- Identify what money is left and prioritize it. What cash you have left each month after 1. and 2. is for discretionary spending. Optional spending is already at a minimum for most of us right now since we can’t dine out at our favorite restaurants and there’s little incentive to buy new shoes when no one can see them on our Zoom call anyway. If there has ever been a time to easily cut back on this spending, it’s now. Consider repurposing these funds to beef up your emergency fund or make tax-advantaged savings contributions (see below).
And last of all…
Financial control for those with job stability:
- Do the steps above. This is spring cleaning, guys! While we’re stuck at home getting things done, prioritize a financial tune-up alongside (or just maybe ahead of?) reorganizing the silverware drawer. Go grab our free Quick Guide to Wrangling Your Money to help with this.
- Rebalance your investments, particularly those in your retirement accounts (401(k), IRAs, HSA). Click here for further advice on this from Vanguard.
- Put your extra cash to work.
- Look AGAIN at your emergency funds. Are they sufficient and should you add more? Are they invested in a low-risk and accessible account earning interest or dividends?
- Consider investing but always use tax-advantaged accounts first. The deadline for prior-year contributions to these accounts has been pushed back alongside the tax filing deadline which is now July 15. Should you contribute all at once? Maybe – just do not try to time the market. Consider dollar-cost averaging instead; click here for more information.
- Roth IRA conversions are especially enticing while investment account values are smaller, tax rates are low, and perhaps your income (and therefore tax bracket) will be lower this year too.
- Be generous. Help others less fortunate than you right now by supporting local businesses through purchases of gifts or gift cards. Donate to charities such as food banks, the Red Cross, or any other.
Be persistent with the recommendations above, whether you’re contacting the bank or sifting through credit card statements to identify your living costs. Keep frustration at bay (you can control that) and keep at it. But above all, get clear on where your finances are at; clarity begets financial control.
“When I was a boy and I would see scary things in the news, my mother would say to me: ‘Look for the helpers. You will always find people who are helping.’” – Fred Rogers
This is my advice to you: “Look for the helpers” because they are all around us right now: in our government, the SBA, our mortgage lenders, our landlords, our communities. Find the helpers and be sure to help yourself by controlling what you can – your finances are a good start.
And finally, please pass this advice along to others who need it: be a helper too.
We are all in this together, and together we WILL get through this.