As the COVID-19 pandemic forces more and more businesses to shut down or change the way they operate, the economic toll on the nation’s workforce is growing. Already, millions of Americans have lost their jobs, been placed on furlough or had their working hours decreased, with many more likely to suffer the same fate before the crisis comes to an end.
Living on a reduced income is undoubtedly stressful. But if you or a family member do find yourselves in this situation, it’s important to have a clear plan for how to manage your finances, stay on top of any debt repayments and keep daily life running as smoothly and cost-effectively as possible.
If you have been laid-off, furloughed or your salary has been cut, here are 10 important financial steps you can take now.
Create a bare bones budget
The key to effective budgeting at this time is to make sure you’re focusing on ‘needs’ not ‘wants’. This means spending only on essentials like food, housing, medicines and sanitation products. A great example is cooking at home rather than ordering take-out or pick-up. It’s much cheaper and makes sense anyway given the need for us to all to stay inside in order to slow the spread of Coronavirus.
Stop using credit cards
It’s much easier to spend money you don’t have on credit, so switch to only using cash or debit cards. This will force you to live within the budget you set because there’s nothing left to spend in the account. It also means you’re not increasing your debt levels while looking for a new job or waiting for your current one to start up again. It’s often the case that if you’re paying with cash, you spend less than if you’re using a credit card too.
Be honest with your family
Talking about job loss or financial hardship with your loved ones can be difficult and uncomfortable, especially if you’re the household’s primary breadwinner. But now’s the time to leave your pride at the door and pull together to get through this. So, talk to your family about the need to budget and limit expenses as a ‘team effort’. After all, if they don’t know the situation why would they change anything?
Stop or lower savings contributions
If your spouse is still working, they can lower their own 401(k) contributions to boost your overall family monthly income. Meanwhile, consider your own savings contributions too. Stop adding to the kids’ college fund and don’t make that extra mortgage payment. It’s better to preserve the cash in case this crisis goes on longer than expected and, besides, you can always make up the savings when things get back to normal in the future.
Try to estimate your total tax liability for the year. Your own situation may mean that your working spouse can reduce their tax withholding as your total family overall income will be lower than expected. This will increase their take-home pay. You should also try to file your previous year’s tax return early if you think there’s likely to be a refund as this will add a welcome boost to your finances.
Use your savings
As well as stopping any non-essential savings contributions, now’s the time to tap into any emergency savings you might have – particularly if you’re struggling with major outgoings, like rent or mortgage payments. This is, after all, what savings are there for. Do try to avoid using retirement funds unless you absolutely have to though. The taxes and penalties can be severe (although there may be some relief in the case of COVID-19-related job loss). Likewise, it’s not a great idea to sell any stock investments right now unless completely necessary as they’re likely to be worth less than normal due to the current market downturn.
Speak to your mortgage company
Several mortgage companies are offering forbearance programs that let you defer payments until you’re back up and running. Note, however, that you’ll be asked to make up any missed payments when this is over, either in a lump sum or via a new repayment program. It’s worth calling your mortgage company to discuss your options and find out who finances your loan. This latter point matters as government-backed mortgage programs can be different to privately-backed ones.
Call on the CARES Act
The President recently signed the Coronavirus Aid, Relief and Economic Security (CARES) Act into law. It includes approximately $2 trillion in emergency relief funds to address the economic effects of the COVID-19 pandemic and is aimed at supporting workers and small business owners whose incomes have been impacted by the crisis. Depending on your individual circumstances, you may be eligible for tax rebates, grants or loans of up to $100,000 penalty-free. Read our guides on the CARES Act and how it could help you here.
Take advantage of any available benefits
These are exceptional circumstances, so don’t be afraid to investigate other accredited financial assistance options that may be available to you. These include unemployment benefits, job transition assistance and, in more serious or prolonged situations, housing assistance.
Take a part-time job
If you find an opportunity to take on a temporary, lower paid or part-time job, put ego aside and do it. It will help increase your monthly budget and is likely to have a positive mental impact too as it will make you feel like you’re doing something to make the situation better. The COVID-19 pandemic is an unprecedented, unpredictable and hugely testing time. Taking positive action to get yourself and your family through it is something to be proud of.