Bank of Dad, I know we’re luckier than many people in terms of how coronavirus has impacted our family finances. My job is safe, and I’m able to work from home. But my wife’s company underwent cuts and her position was removed. Her paycheck was larger than mine. We’re now trying to move from a two-income family household to a single-income household. Everything is much tighter. I can pay our mortgage with one paycheck and we’re not paying for our son’s daycare anymore which helps limit costs. But we’ve dipped into our rainy day fund to help pay bills and have been using credit cards a bit more.
My question is what are some of the best steps to take right now? Should my wife — or can she – file for unemployment benefits if I have a job? How do we look at our budget to make sense of this? How do you transition into a single paycheck household? Any advice would be great to hear.”— Anonymous, via email
After more than a decade of economic stability and job gains, it started to feel like the good times would last forever. Unfortunately, COVID-19 stepped in and reminded us that financial security is never guaranteed.
Families like yours that have lost substantial income will have to make some big adjustments to regain your footing — and that can certainly be painful. But in the process, you’ll hopefully gain some habits that will put you in an even better financial position than you enjoyed before the pandemic.
Let’s start with the most important remedy right now — have your wife start the application for unemployment benefits as soon as possible. Eligibility isn’t contingent on a spouse’s income, so she shouldn’t have much trouble qualifying.
Because the CARES Act provides an extra $600 a week to normal benefits through July, a lot of middle-class families are making nearly as much — and sometimes even more — than they brought in through their job, says Joy Liu, a trainer with New York City-based The Financial Gym.
The key is to start the process now. State unemployment departments aren’t used to handling the obscene number of applications that they’re now seeing, and that’s creating a bureaucratic nightmare.
“Expect there to be slowdowns,” says Liu, who provides financial coaching to clients around the country. “But know that you’re fully entitled to these benefits, and that they’re working really hard to get them to you.”
Because of those delays, it’s all the more important to create a budget that prevents you from draining your savings and racking up huge credit card debts. You can certainly download one of the many great budgeting apps available these days, but low-tech options like a spreadsheet or pen and paper can be just as effective, according to Michael Garry, the founder of Yardley Wealth Management in Newtown, Pennsylvania. “Whatever works for you is the best way to do it,” he says.
To get a handle on what you’re spending, Garry suggests going back six months to track your expenditures. “Ordinarily, three months would do but it seems most of America has spent much less over the last three months than they did before the coronavirus hit,” he notes.
This is one case where being a little OCD can be more virtue than vice. Garry recommends going through your checkbook and credit card statements line by line so you can get a crystal-clear picture of where your money’s actually going. Make a list of all your fixed expenses, like your mortgage, car payments ,and insurance, as well as variable costs such as gifts or visits to a restaurant.
We’ve grown accustomed to living hermetic lifestyles over the last month, but that’s likely to change somewhat as most states start to open up a bit. So keep an eye on any expense categories, like dining out, that could very well bounce back up again. “I’d give much more weight to your spending before we were sheltering in place,” says Garry.
Comparing your expected spending to your current income should give you a better sense of how much runway you have with respect to your savings account, says Liu. Look for areas you can trim back so you’re no longer running a substantial deficit. Cutting the fat out of your budget will not only help now, but in the long run, too. “When his wife gets another job, they’ve formed some healthy financial habits that will let them replenish any savings they had to use or pay back any debt they had to incur,” he adds.
Heck, if you can find a way to get your spending down below your one paycheck, you’ll suddenly have a lot more options in front of you.
“Maybe someone had always wanted to stay home with the kids,” says Liu. “If you’re saving a lot of money on childcare and happier that way, you’ve proven that you can afford that type of lifestyle.”
In the meantime, try to avoid getting squeezed by your credit card issuers while you get back on your feet. If your credit score is still solid, Liu suggests looking for cards that offer zero interest for the first few months. With some careful budgetary choices, you may even find that you can pay off the balance before the introductory period expires.
I’m sure your wife’s layoff was a kick in the gut – it always is. But by using this situation to become more intentional about your spending, it might not be nearly as scary as you originally feared.