The coronavirus has thrown one hell of a haymaker at all of our finances. Here are a dozen things everyone should do to stay financially healthy.
Ominous economic news is everywhere. Unemployment rates are the highest they’ve been since The Great Depression. Retirement accounts have been hit with one hell of a haymaker. The stock market isn’t as volatile as it was in February, but it’s definitely not something that bestows confidence. The coronavirus has put a lot into perspective. And we all need to make the right decisions for our financial health.
So, if there was ever a year to do a thorough spring cleaning of your financial life, this would be the one. But what does that entail? Where do you start? What matters and what doesn’t? What money should stay put and what should be moved? The good news is that there are wise moves to make, including renegotiating student loan interest rates, haggling with companies about credit card debt, and speaking to insurers about rebates. Times are certainly tough. But there are things everyone needs to do.
To offer some answers, here are 12 pieces of financial advice everyone should consider in wake of coronavirus. Consider it a guide to how to get your money matters in order and cool some of the anxiety that COVID-19 has brought our way. Some.
1. Know Where Your Money Is Going
“I’m a big proponent of knowing where your money is going regardless of economic conditions, and making sure you spend on things that improve and bring fulfillment to life,” says John Bush, an advisor with Grand Rapids, Michigan-based Elevate Financial Planning. Times like these offer a perfect excuse to thoroughly review your budget and make sure you’re prioritizing what you buy. Bush suggests making a list of things that bring you the most joy. Then, after some reflection, review your budget for the last few months — or at least review your bank statements — and reconstruct your spending.
2. Cut Back Where It Makes Sense
Anyone who’s recently lost their job or whose job is in jeopardy (i.e. pretty much everyone) needs to do some budgetary streamlining. That means drawing a nice, neat line between non-discretionary expenses like your mortgage and non-essential categories like take-out food and clothing. Even paying insurance on a second car that’s not being used might be superfluous these days, Bush points out. If you can do without, you’re much better off putting those dollars into a rainy day fund.
3. Perform a ‘Trial’ Retirement
One of the challenges of saving for retirement is that most of us are shooting in the dark when it comes to projecting future expenses. For Kitty Bressington, founder of Linden Financial Consultants in Rochester, New York, life under lockdown gives everyone a convenient simulation of what they’ll be spending after they’ve left the workforce and life slows down a bit. Some expenses, like transportation and entertainment costs, may go down while others go up. “If you’re younger, it gives you an idea of how much you need to save in order to build the necessary resources for retirement,” she says
4. Lower Your Interest Rates
By historical standards, interest rates are obscenely low. So it’s a perfect time to take advantage. That’s especially true for those with student loans, says Erik Kroll of Milwaukee-based Hilltop Financial Advisors. As long as you have a good credit rating, you might be able to refinance your existing loans into a new private loan with substantially lower fees. If you currently have a federal loan, you’ll want to tread carefully, though, as private loans don’t offer income-driven repayment plans or loan forgiveness options.
Ditto if you’re paying down a mortgage. The average rate on a 30-year fixed loan is a measly 3.57 percent right now, so you’ll want to compare that to what you’re currently paying. Keep in mind that you’ll have to pay closing costs — though they might be rolled into the loan itself — so you really need to run the numbers with your loan officer. “If someone can knock their rate down by 0.5 percent or more, then I’d at least take a look,” says Kroll.
5. Haggle With Your Credit Card Company
A lot of Americans are using their stimulus checks to lop off their credit card debt. Even so, the average household is now carrying a balance of $6,354 on their credit cards, according to new data from Compare Cards. If you can’t pay down your full principal amount, you can at least get a lower interest rate in many cases, says Kroll. As long as your credit score has improved since taking out the card, you can always ask the issuer to put you in a lower-rate tier. The threat of you jumping to a different company may be enough to twist their arm.
6. Ask Your Insurer for a Break
During lockdown, many Americans aren’t driving as much as they used to — or even at all. As such, some auto insurance companies are automatically giving their policyholders a rebate. If your carrier isn’t so munificent, Kroll advises customers to pick up the phone and apply a little pressure. Simply put, those companies don’t face the same liabilities they did a few months ago. “You’re most likely driving a lot less, and there are fewer people on the road,” says Kroll.
7. Put Extra Income to Good Use
Despite the overall economic mess at the moment, a lot of households actually have more wiggle room in their budget as they stop spending money or activities, meals out, and other such things. Some folks on unemployment are bringing in more income than before due to the $600 COVID-19 “bonus” thrown into the relief bill. If there is an uptick in a bank account, Bressington urges parents to put those funds toward a good use, whether it’s bolstering a retirement account or continuing education.
If able, you can also use some of that money to help your local community — after all, no one wants their business district to become a ghost town after the virus subsides. Bressington says you may want to tip service providers who are going through lean times, purchase gift cards for nearby establishments or support food pantries. “Those of us who have a little extra can help other people during this period of uncertainty,” adds Bressington.
8. Invest in Yourself
There’s not much to love about COVID-19, although the pandemic has also opened up certain opportunities — many adults have never had so much free time on their hands. Bush encourages parents to use those moments wisely by investing in themselves. “Information is often free and readily accessible,” says Bush. “Now may be a great time to explore building a side gig or a new venture that monetizes your hobbies and passions.”
9. Still Working? Keep Saving
There are two types of investors — those who can stomach as short-term volatility and those who tear through their medicine cabinet looking for Tums. For younger investors who are in the former camp, Bush says it’s a great time to benefit from stocks being “on sale” right now. If you have a 401(k), Bush recommends dollar-cost averaging, or investing the same amount each paycheck, regardless of where the market is.
For those who get squeamish, though, Bressington says it’s okay to sit on the sidelines for a while. “If you’re a conservative person, don’t be an aggressive investor because it’s only going to cause you anxiety,” she says.
10. Avoid Sudden Movements
The markets have regained much of their lost ground, but given the unpredictable scenario we’re now in, there’s no telling which direction they’ll head from one week to the next. Bressington likens the stock market to the rattlesnake you might encounter during a morning hike, where any quick movements can be costly. Her advice? “You need to stop, assess the situation, and then slowly make changes.”
11. Use Losses to Minimize Your Tax Bill
The conventional wisdom tells investors to buy low and sell high. But Bressington says there may be a very good reason to sell a losing stock or mutual fund — so you can count those capital losses against your capital gains or a portion of your taxable income. That doesn’t mean you have to exit the market, though. The IRS allows you to “harvest” losses as long as you don’t purchase a “reasonably similar” investment; and if you wait at least 31 days, you can simply repurchase the same securities you used to own. The rules get a bit tricky, so it doesn’t hurt to touch base with a professional if you head down that path.
12. Keep a Long-Term Perspective
As bad as things may look now, the fact is that most younger parents will have decades of prime earning years ahead of them. Bush says you should maintain that longer view of things as you make decisions. “If you get overwhelmed, stop, breathe, and remember that you have time to recover, and with some flexibility, you can come back stronger than before,” says Bush. “Setbacks are a part of life, and if used correctly, can be used to improve your financial outlook.”
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