Many Americans are feeling the stress and financial uncertainty that has come with the coronavirus outbreak.
According to the Bureau of Labor and Statistics Employment Situation Summary, the unemployment rate rose to 4.4% in March 2020. Leaving 7.1 million people without a job.
Combine this sudden drop in income with the fact that many families are stretching their finances to stock up on food and supplies, and you’ve got a recipe for financial disaster.
Fortunately, there are steps you can take to protect your finances and prepare for a coronavirus-related recession.
Here are some financial tips to get you through this pandemic.
Put together a clear budget
Evaluate your finances and create a budget that reflects your current spending and financial situation.
Your spending habits may have changed considering many industries are shut down. For example, you’re probably spending more money on cooking at home compared to when you could go out for dinner at a restaurant.
Or, maybe you have an unexpected pool of money from a canceled trip that you can factor into your budget.
Until you sit down and review your current finances — given the dramatic lifestyle changes everyone is experiencing — you won’t truly know your income versus your expenses.
Scale back your expenses and spending
Cut back on any nonessential spending even if you’re currently bringing home a paycheck. You don’t want to wait until you’re in a bad financial situation to make drastic changes to your budget.
Drop or suspend any services you aren’t currently using, like your gym membership or your children’s springtime activities (e.g., dance tuition).
You should also review your current rates for monthly bills like electricity, phone, and internet. Many of these companies typically offer lower rates to retain customers. And you may be able to tap into even better deals given the current economic climate.
Buy only what you need for food and supplies instead of making large purchases based on anxiety and fear. And avoid making unnecessary online purchases just because you’re bored or need a sense of instant gratification.
Every dollar you can save will put you in a better position financially if your income changes over the next several months.
Boost your income
Explore different ways to increase your income. The more you can diversify where your money is coming from, the more financially stable you’ll be.
While some industries are temporarily closed, other employers can’t keep up with demand. If the opportunity is there, you can earn extra money by picking up shifts. Or, apply for a part-time position to get you through this hard time.
You can also look into various side hustles to earn money in your free time. For example, you can become a virtual assistant, offer your expertise as a consultant, or teach or tutor students online. There are so many opportunities to earn extra money on the side, but you have to be willing to put yourself out there.
File for unemployment if you’ve lost your income or experienced a drop in hours at work. States now have more flexibility to amend their unemployment benefits for people affected by coronavirus-related closures and stay-at-home orders.
Check with your state’s unemployment office for specific requirements. Just keep in mind that phone lines and websites are jammed due to the widespread impact of this pandemic. Be persistent and don’t give up.
Contact your creditors and bill providers
Call each of your lenders or service providers to request payment relief. You may be able to delay your payment, temporarily lower your interest rate, or have an overdraft or late fees waived.
Each institution will have its own relief options, but most will work with you to figure out a plan that works for both parties, especially given the current pandemic.
Be prepared to discuss your financial situation in detail and provide an estimate of how much you can afford to pay for the time being. And don’t forget to explicitly communicate that your inability to pay is a direct result of the coronavirus pandemic.
Use your stimulus check for your emergency fund
Over 80% of American adults are expected to receive coronavirus economic impact payments. If you don’t need this relief money to pay your immediate expenses, consider using your stimulus check to grow your emergency fund.
To prepare for a potential recession, you’ll need at least six months’ worth of expenses stored away as your emergency fund. And if your job stability is up in the air, you should aim for an emergency fund that covers at least one year’s worth of expenses.
Although an exact date of when payments will be provided has yet to be announced, the government has stated that taxpayers with an adjusted gross income (AGI) up to $75,000 will receive the full payment of $1,200. And this income threshold increases to $150,000 for married couples filing jointly, resulting in a $2,400 payment.
Additionally, taxpayers will receive up to $500 for each qualifying child.
But stimulus payment amounts will be phased out if your AGI is above the $75,000/$150,000 thresholds, and they zero out at $99,000 for single taxpayers and $198,000 for joint filers without children.
This is the only stimulus payment that is certain as of now, but future payments may be up for discussion if the economy isn’t able to bounce back quickly from the pandemic.
Understand your student loan options
If you have federal student loans, the CARES Act signed into law on March 27, 2020, directed loan servicers to suspend monthly payments and interest accrual for loans held by the Department of Education through September 30, 2020.
Loan servicers are currently implementing this directive, but this six-month administrative forbearance is automatic. So, you don’t need to do anything to receive this benefit.
But if you don’t have qualifying federal loans, you may be one of the millions of Americans who got left behind.
Private student loan borrowers were not part of this relief effort, nor were borrowers that have Federal Family Education Loans and Federal Perkins loans that aren’t owned by the government.
If you’re struggling to make your private student loan payments, you’ll need to contact your lender to discuss coronavirus relief options.
Keep in mind that your student loan debt will still be there once the administrative forbearance and other relief options are lifted. You can get rid of student debt faster by lowering your interest rate through refinancing or explore options for an income-driven repayment plan that can dramatically lower your monthly payments.
Apply for small business assistance programs
Businesses are taking a huge hit due to the measures federal, state and local governments have put in place in response to the coronavirus. But there are many resources available to help prevent permanent closures and layoffs.
If you own a small business or are self-employed, look into programs provided by the Small Business Administration (SBA). You may be eligible for funding from:
- The Paycheck Protection Program. Employers with less than 500 employees can apply for funds to cover up to eight weeks of payroll and certain other expenses (e.g., rent, mortgage interest or utilities). This program is designed to keep workers employed and has a built-in forgiveness component if the loan is used appropriately.
- The Economic Injury Disaster Loan. SBA is providing low-interest working capital loans for up to $2 million. Through this process, small businesses can apply for an emergency advance up to $10,000 to provide relief from temporary loss of revenue. And the advance will be treated as a grant, which means it doesn’t have to be repaid.
Additionally, your state may be providing resources and financial assistance specific to small businesses. Visit your state’s website or contact your local SBA office for guidance.
Continue with your long-term investing plan
With the recent ups and downs of the stock market, many people are making rash decisions with their investments.
But if you’re a long-term investor, then you should hang tight and ride the uncertainty out because you aren’t investing for a short-term goal that falls within a five-year period.
Aim to contribute a minimum of 5% of your income to a retirement account and $100 a month into a taxable account.
If you’re able to, max out your annual retirement contributions. And then consider investing any excess funds if you won’t need access to the money for at least five years.
Play the long game with investments. But be sure to also funnel any funds you might need in the next several years into a high-yield savings account.
Reach out for help if you need it
These are unprecedented times we’re living in. Regardless of what happens with your finances, communicate with your friends, family and community members.
Become familiar with your city and state’s websites so you can understand which benefits and resources are available before you need them. Reach out to local nonprofits and community organizations for assistance unique to your area.
People and companies are stepping up from all corners of the country to lend a helping hand. Start taking steps to ensure you remain financially stable and don’t hesitate to speak up if you need assistance.