While health is everyone’s No. 1 concern these days, financial wellness is also top of mind. After all, many households are finding themselves in a budget bind as economic woes hit the economy at all levels. Even if your job is secure, you might be finding a partner or someone else in the household facing a potential salary cut or even a job loss. Here are seven steps to take to help you maintain your finances in the midst of COVID-19.
- Revisit your budget.
Given today’s new reality, your budget might well have shifted in many ways. Now is the time to take a good look at your current spending to see what’s changed. Divide the budget into three categories:
- Fixed expenses: These are line items like rent or mortgage, car payments, student loan payments, credit card or other debt and other expenses that don’t fluctuate each month. Chances are good these have stayed relatively the same during this time.
- Variable expenses: These are expenses like utilities, home and car maintenance, groceries and other bills that that aren’t exactly the same each month. This is a category where you are likely seeming some fluctuation; for example, your work-related clothing and commuting expense might have gone down while your grocery bill is probably rising higher.
- Discretionary expenses: These are costs that you don’t haveto spend money on—often referred to as “wants,” rather than “needs.” Typical discretionary expenses include entertainment, salon services, non-work-related clothing, vacations and household items. This is the area where you’ve probably seen the most change, and in most cases these costs have gone way down—after all there are very few of these things we can still do. Take the money that you are saving in these areas and reallocate it to any variable expenses that might have gone up or stash it away in an emergency fund for another time.
- Figure out how much money you have on hand.
If you’re worried about your future job security, it’s important to know how much you have on hand in “liquid” form, that is cash in your bank and emergency savings accounts, as well as how much you have available on your credit cards.
You can also check to see how much is coming your way from the stimulus bill in the form of a check that most taxpayers are slated to receive in late April. There are several online calculators that can give you an accurate picture of how much your family is likely to receive. If your finances are currently fine, it’s wise to think about putting this in your emergency savings account for the future, if you can.
Finally, you might be eyeing your retirement accounts. That’s because the stimulus bill temporarily waives the 10% penalty that otherwise would be incurred by making a withdrawal from your IRA or 401 (k) before the age of 59 ½. While this can seem tempting, remember that taking money out now not only locks in the losses that your account is likely to have suffered, but also means that you might miss out on the rebound that will almost certainly happen at some point. Make this financial decision your last resort.
- Check your insurance.
Now is a good time to talk to your HR department about your health and disability insurance to make sure it’s up to date and find out what your deductibles and other responsibilities are. While COVID-19 tests are being provided without deductibles or co-payments due to the “Families First Coronavirus Response Act,” you’ll still want to double-check what costs you are responsible for should you or a family member need healthcare. It’s also smart to ask when short- and long-term disability programs kick in, if you need an extended period of time off work.
- Don’t neglect your 401 (k).
We warned you that it’s best not to borrow from your 401 (k), but you also don’t want to stop investing, if you can. If your account has dipped, as many have, it might be tempting to forgo payments, but that could mean that you miss out on a future stock market rise. That’s because even when economic times seem bleak, the stock market has historically always rebounded, and you don’t want to miss the “bounce.” If money is tight, try to contribute at least up to your company’s match, if they make one, so you aren’t missing out on that “free money” that they contribute.
- Don’t forgo payments.
Mortgage servicers, credit card companies, student loan lenders and others realize that consumers are in a tough spot, and many are providing relief and/or “forbearance,” which means that you may be able to miss a payment with no penalty. Remember that everyone’s situation is different so be sure to check with your providers to learn more about what you need to do, if anything, to get this relief. Just be careful never to outright miss a payment without contacting your servicer first.
- Preserve your credit.
As noted above, be in touch with your providers to talk with them about what you can do if you’re not able to cover an entire bill or outstanding balance. Ask about a potential payment plan, or at least keep making minimum payments to keep your credit score from taking a hit.
- Stay calm…and talk to a professional.
As with any financial decision, it’s wise to seek the advice of a financial professional who can look at your situation, goals and personal timeline to help give insight into the best money moves to make now. And notice we paired these two pieces of advice; talking to a financial advisor is often your best bet to putting the situation in perspective and seeing the light in what might seem like a dark financial tunnel.
And of course, above all else, be kind to yourself. These are trying times given the enormous uncertainty all families are facing. While you’re trying to make financial decisions about the future, make sure to take everything else one day at a time.