Financial impacts of COVID-19 are being felt by business owners and families alike. Here's how to protect personal finances during economic uncertainty.
COVID-19 has shaken our foundations in more ways than one. While we worry first about the health and safety of those we love, the economic fallout can’t be avoided. With stock accounts plummeting and unemployment expected to soar, most people, no matter what industry they are in, are liable to be feeling vulnerable. Here are some common-sense steps to take to help weather these unprecedented times.
1. Make a New Budget
First, assess your cash on hand, including your bank account, your emergency fund and available credit. You want a clear picture of how much money you have readily accessible to supplement your income, particularly if you anticipate earning less due to decreased commissions or shorter hours.
Then create a list of your current fixed costs, including your housing, utilities, car payments, student loans, savings, etc. Next comes your variable expenses; you may be pleasantly surprised to find that a number of categories may be sharply curtailed, as many activities and services are canceled due to social distancing. While your grocery bill is likely up, you’re probably saving a bundle on commuting expenses, professional clothing, personal services, vacations, kids’ activities, your daily morning coffee or afternoon snack and the like. If you can, direct some of that cash to bolster your emergency fund, as long as you have ample income to handle all your fixed bills.
2. Identify Ways You Can Cut Back Spending
The good news is that with most of us “sheltering in place,” there is less opportunity to make impulse buys. Your main expense these days may be groceries—so try to have some fun with paring that bill as much as you can. Make a game of “shopping” in your pantry or freezer to use up items you already have with creative preparation to conserve grocery dollars or challenge your kids to find low-cost recipes.
While we’re all looking for diversions these days, see if there are ways to keep costs low. Seek out some of the many services offering free access to downloads of books, audiobooks, exercise videos and movies to keep entertainment options flowing. Now is probably not the time to cut out your streaming movie services, but see if there’s any overlap within your family and get rid of some subscriptions if you can. Swap puzzles, books and games with neighbors rather than spontaneously ordering online.
3. Spend in Ways That Bring You Joy
While you might be staring at a more austere budget than usual, consider how and why you are spending your money and find ways to spend purposefully. Remember, what is frivolous to someone else might be just what you need to keep your spirits up.
That means you might decide to splurge on take-out as a thank-you to your “chief chef” who’s been pressed into extra duty—and support a local small business at the same time. Or buy some fancy new slippers as a treat for your feet or try a fun hair color.
If you are feeling relatively comfortable financially, consider how you can donate to causes or people who might be feeling more strain. Some people are “paying it forward” to providers like stylists or personal trainers by paying in advance for services you can redeem in the coming months in an effort to keep their cash flow healthy. You can also support a small local retailer or restaurant by buying a gift card to use when the location re-opens.
4. Double-Check Health Insurance and Stay Prepared
Standards are evolving concerning what portion of the testing or treatment bill you might be responsible for should you suspect that you have COVID-19. While most insurance companies have eliminated deductibles or co-payments for testing through the “Families First Coronavirus Response Act,” it’s always wise to check your plan’s coverage as that might not include private testing companies.
In addition, many patients headed to the hospital with what they think is COVID-19 could find out that instead it’s the flu or pneumonia, which could be covered differently. It’s always wise to get as much information as you can upfront from your insurer before you or a family member is in a panic situation.
5. Rebalance Your Investment Accounts
Whether it’s your child’s 529 college savings account or your IRA, seek advice from your wealth manager who can look at your asset classes and your time horizon to determine what, if any, changes you need to make. Discuss whether your financial situation or goals have changed and when you expect to need to access funds in your accounts.
Remember that you can be on the hook for stiff penalties if you take an early withdrawal from any of your tax-advantaged accounts so make sure to talk with your financial professional about other options if you need access to ready cash.
6. Continue Contributing to Your 401(k)
It might seem foolhardy to direct money to your investment accounts when the stock market is so volatile and your losses look significant. But while it seems counterintuitive, the more you invest now, the more you will have available when the market eventually returns.
Follow the words of Warren Buffett: “Be fearful when others are greedy and greedy when others are fearful.” In other words, don’t just consider today’s events, but look down the road to when you will eventually be withdrawing the money, with the expectation that the stock market will have recovered. With prices down, it can feel like you’re buying stocks “on sale,” assuming the fundamentals are strong for the long term. Discuss your strategy with a financial professional, who can help make wise decisions based on your personal time horizon and investment goals.
7. Don’t Panic or Make Fast Decisions
We know: It’s easier said than done, but don’t react in the moment and make hasty decisions. For example, if you sell your investments when the market is down, not only does that lock in your losses, but you are likely to miss the inevitable rebound—and yes, historically, the stock market has always eventually rebounded after a correction.
While today’s economic uncertainties are causing universal worry, the best course of action is to gather all the information you need, then make measured decisions with an eye to both short-term and long-term realities.