Easy tips to plan your personal finances during the uncertainty and fear of COVID-19
2020 has thrown us through quite a loop. As we say with any financial planning situation, take a breath and take a step. Each step you take toward financial wellness will pay for itself.
Ease Your Way into It
Once you take a deep breath (maybe two or three), follow these quick steps to ease your way into creating a new financial plan:
Understand how much cash you have, and how much you'll need. (See: Create a Net Worth Snapshot)
Don't be too reactionary.
Banks are waiving fees and asking for those with hardships to contact them.
Federal tax filing deadline has been extended to July 15, 2020. State deadlines may vary.
As if a global pandemic wasn't stressful enough, we are also trying to make sense of how all of this uncertainty—from job security to industry and economy closures to to market volatility—will impact our personal finances. You are not alone. We hope to provide some insight and comfort on this stressful topic.
It's not too late to start planning your finances
Carve out some time to hunker down and go through your personal finances (See: GUIDE: Financial Wellness Check-Up) It's not too late! But, it shouldn't wait much longer. Regardless of your personal or financial situation, everyone should evaluate their personal finances right now.
Have a partner? Talk to your partner.
(See: Talk Finances with Your Partner.) The impact of COVID-19 counts as a "life changing event." While we're used to referencing a new job, house or baby as a "life changing event," 2020 had different plans! And, any time a big life change pops up, it's time to revisit personal finances. Especially if you manage your finances with a spouse or partner, it's important to review your decisions and their implications as a team. Remember, there's no "I" in "team."
Cash is king. Evaluate your emergency cash reserve.
A "cash reserve" is just a fancy term for having some money in the mattress. It's liquid cash you have on hand for an emergency. Take a moment to determine how much cash you have right now compared to what you spend each month. (See: How to Create a Budget.) Be sure to include upcoming big expenses, outstanding bills or those due in the next few weeks. This will help you understand how long the cash you have will last.
Keep an eye out for your COVID-19 government stimulus check.
The US Treasury released the CARES Act, which will distribute a massive amount of money to individuals and companies in hopes to stimulate the economy. At the time of publishing this article, the CARES Act allows for a one-time payment of up to $1,200 per adult, and up to $500 per child in your household, to help with the financial burden of COVID-19. If you're in a higher tax bracket, your COVID-19 stimulus relief will be phased out over time. These distributions have already started. If you listed direct deposit on your tax return, the funds may be deposited automatically; if not, you will receive your government stimulus check via mail in the coming weeks. Curious how much money you should expect? View an estimate.
Yes grasshopper, it's time to actually create a budget.
(See: How to Create a Budget.)
Take a peek at your cash flow each month—how much goes out, and how much comes in. Of the inflows, how certain are those? Is a majority of your income coming from inconsistent gig projects or a from a super stable W2 employer? As scary as it may seem, consider how stable your income is, then plan accordingly.
Segment your budget into your needs, wants and savings.
You can't really adjust your needs too easily. (Think: mortgage, rent, basic food, health insurance, a car payment, err, Netflix.) Your wants, however, are fair game. (Think: something you can go without, like what you spend on carryout, excessive groceries, clothes, online shopping, subscriptions, etc.) Savings are things like a 401k contribution, contributing to an emergency cash reserve, a child's 529 college savings pan, aggressively paying down mortgage principal.
We don't recommend you rush to decreasing your savings bucket. But, if you've trimmed all the wants you can, and can't decrease the needs much more, you may be forced to temporarily decrease some savings.
Just remember: as soon as you can, turn your automatic savings contributions back on and, if possible, make up for missed contributions. (#IdealWorld, we know.)
Revisit your financial plan to pay off debt—including student loans.
It's important to get a handle on paying off debt, of course. But, also recognize that some debt providers are being creative. Some are forgiving and allowing late payments without penalties. In response to COVID-19, federal student loan interest dropped to 0% for at least 60 days (as of March 13), and you can request an interest free pause on payments. Look closely at this and replan. (See: How to Pay Off Debt When Cash Is Tight.)
Don't hack your investments!
Now is NOT the time to make emotional decisions! It's not the time to sell your investment holdings, even though they're in a decline. Instead, notice how you feel during this heightened economy. If checking the markets each day keeps you up at night, consider not doing that. Selling low is not the right decision.
Stay calm and know that knowledge is power.
Reviewing your cash reserve and budget is not super fun to everyone. The more you can understand your monthly cash flow and plan for various scenarios (good, bad and worse), the better off you will be to handle uncertainty—not to mention, the better off you will be to sleep at night.
Looking for more? The Pocketnest app is available! Download Pocketnest and get your finances in order—in just 3 minutes a week! No jargony finance-speak, pricey fees or in-person meetings required.
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