During any crisis which impacts employment, economic growth, markets, or our health there will be a fair amount of fear an anxiety. The crisis we’re experiencing with COVID-19 is affecting all four of these things, making the collective fear and anxiety we are all feeling even more severe.
If you’re stuck, I’m offering free/pro-bono help to people impacted by covid-19. To book a time slot, click here.
But in the midst of fear there are always opportunities. With schools, hiking trails and stores closed all around us, it may feel like everything is out of our control, but there are some bright spots. Besides protecting your mental and physical health, here are some things to focus on right now.
To listen to the podcast discussion on this topic, tune into Corporate Hostage, No More! on Spotify or iTunes.
Your Emergency Fund
Ever wonder why financial advisors say you should save up 3-6 month’s worth of your expenses in a cash savings account? It’s for times like these. This buffer is the best way to get you through an emergency related to a health or dental issue, injury, job loss, accident, or family emergency. For the first time, many of my clients are calling to thank me for urging them to set aside so much in cash for emergencies. It provides a lot of comfort during times like these.
If you don’t have 3-6 months’ worth of expenses saved, you’re going to need to work harder to preserve the savings you do have and make your current income stream last as long as possible (more on this below). If you do have 3-6 months’ worth of expenses saved, now is a good time to start adding to your cash buffer. I recommend doing this BEFORE you decide to invest money in the stock market or pay off debt.
Both your 2019 tax refund and your CAREs act stimulus check should be used to increase cash buffers, not pay off debts or add to investments.
Your Saving Rate
Under normal circumstances, I recommend using up to 20% of your take home pay toward savings goals and/or paying off high interest debt. During times like these, it might make sense to increase your savings rate to a degree that’s possible for your family budget.
Since we’re all home, not commuting, not traveling out of town, doing very little shopping, and cooking a lot of meals at home, chances are you’re spending A LOT less than normal. You may even have several rebates coming to you with concerts canceled, and hotel stays canceled. On average, my clients say they are spending 15-30% less than before. Don’t squander this opportunity, use it to build up your cash cushion. Even if you’re not experiencing a change in pay and your work has successfully transitioned remotely, having extra cash can be helpful for a lot of reasons. I would continue saving until you have 9-12 months of your basic monthly expenses covered or until we’re certain this health crisis has an end in sight.
Companies that are doing fine now, might find their ability to pay employees goes down if this crisis continues longer than expected. Already, I know lots of people who have good, high paying jobs that translate well to at-home work, yet pay raises and bonuses are being delayed. Worse, I’ve seen some high earner’s companies implement an immediate pay cut and they are now getting paid 2/3 of their normal salary.
It’s important to think ahead. Next year, bonuses will be low or non-existent. So if you typically utilize your bonus to pay for part of your lifestyle or basic living costs, it’s time to start building up cash savings to address the fact that your bonus next year is in jeopardy.
Set Aside A Freedom Fund
Another reason to save cash instead of invest is for something I’m calling a Freedom Fund. There’s going to be so much pent up demand to book travel, buy clothes and gadgets, eat out and go to entertainment venues with friends, that we will likely be spending more than normal once life gets back to normal. Plan ahead now. This freedom fund will help you sustain a higher than normal spending for a few months once this crisis is over.
Focus on Giving Back
With fewer monthly costs for the time being, another thing you can do with some of your monthly savings while your costs are a bit lower is give to causes to support food banks, local charities, business grants, etc. You can also buy local gift cards from restaurants, spas, and other service providers.
The CARES act recently passed by Congress allows you to deduct up to $300 of your charitable gifts on your taxes in 2020 without having to itemize deductions.
Stop the Bleeding
If you find yourself with your income cut or on a furlough. It’s time to stop the bleeding. The first step is focusing on your large bills like your car, your home, and your student loans.
- As of publication Nissan, GM and Ford had announced that individuals impacted by COVID may be eligible for payment extensions on leased and owned vehicles. If you financed through one of these or another institution, call them see what relief is available.
- If you know your mortgage is owned by Freddie Mae or Fannie Mac (even if it’s serviced by another banking institution) you may be eligible to suspend payments for up to 12 months. Foreclosures have been suspended under the CARES act. Other mortgages may be eligible for relief on a bank-by-bank basis. Call your mortgage company to discuss options.
- If you’re a renter, there has not been a national law passed to prevent evictions due to inability to pay, but many state and local governments have passed that protection. Since mortgage relief was included in the CARES act, it’s likely that your landlord will work with you. The best course of action is to reach out to your landlord directly.
- Federal student loan payments have been suspended and the interest accruing will drop to 0% through September of this year. You don’t need to enroll in this program, it’s automatic. If you have private student loans through a bank lender, then you should contact your provider to see what relief might be available.
- Several car insurance companies have announced anywhere between a 15%-25% discount on insurance premiums during the COVID-19 crisis. Check with your provider to see what discount they are offering.
Next, address other debt payments. While you should normally pay off all new spending on your credit card in full each month, during times like these if you you lost your job or went on furlough, it’s ok to make minimum payments for a while. However, be careful to limit the new spending you add to your card – focus on necessities only.
- As of publication, American Express, Citi, Chase, and Capital One have announced that they are working with customers impacted by COVID-19 to potentially waive late fees or offering deferred payments. Some are waiving interest and penalties during this time. You should reach out via online support or the customer service line listed on your credit card to enroll in the relief options as soon as possible.
- If you have personal loans or lines of credit other than car, home, or credit cards, reach out directly to your bank/loan servicer to find out if payment deferral is an option.
Seek Aid Where Necessary
Governments are providing relief at the federal, state and local levels. New information is being released on programs daily. If you’re a small business or individual needing assistance, check out the resources below.
Unemployment has been expanded under the CARES Act. Typical state unemployment payments will be provided to those who were furloughed or lost their job along with additional federal benefits.
Independent contractors and self employed individuals are eligible to receive a $600/ week federal unemployment payment along with people who had to quit their jobs due to coronavirus, which wasn’t an option before the CARES Act.
To apply, reach out to your state unemployment office. Significant delays have been reported at the state unemployment offices, but they are working their way through the backlogs and your unemployment pay will be retroactive to when you were furloughed or let go.
SBA loans and IRS tax payment assistance
New/expanded small business programs were created under the CARES Act. You may be eligible for one or all of these programs depending on your situation. Some of these are being overseen by the Small Business Administration (SBA) and Treasury/IRS, while others require you to reach out to your banking institution. Taking advantage of one of these programs does not necessarily disqualify you for other programs.
- Paycheck Protection Program & Forgivable Loans (PPP). Reach out to the bank where you have your business accounts first, but be prepared to call multiple banking institutions. NOTE: April 25, Congress passed a law, authorizing an additional $310 billion for the program and banks should start accepting applications again by April 27 until the new round of funding runs out.
- Employee Retention Credit
- Payment of Payroll Taxes from March through December of this year can be spread out over two years (through December 2022). This applies to businesses that don’t participate in the loan programs above.
- Economic Disaster Loans (EIDL) + an emergency grant of up to $10,000 to small businesses and private non-profits. $1,000 per employee is offered under the emergency grant program. Note that before the CARES Act, these loans were being provided only where other assistance was not available. Under the CARES Act, that requirement was waived. The link above provides access to the most recent, streamlined application. Funds are promised within 3 business days, but in reality it’s taking weeks for the SBA to process these applications. NOTE: April 25, Congress passed a law, authorizing an additional $60 billion for this program and the Small Business Administration is reviewing existing applications on a first, come first-served basis, and also accepting new applications starting April 27 until the new round of funding runs out.
- Deferral of 2019 taxes owed until July 15, 2020, and deferral of first and second quarterly tax payments until July 15, 2020.
- The deadline to make IRA and other retirement plan contributions for 2019 was also extended to July 15, 2020.
State/Local grants and microloan programs
Individual states, non-profits and local governments are creating loan and grant programs. Monitor the situation where you live to see if one applies to you. Check with your Chamber of Commerce first for information.
There’s already some discussion there will be a “phase 4” relief bill making it’s way through Congress which could include additional provisions for relief to states, infrastructure spending, business relief, additional hospital equipment/funding, and/or additional tax-relief provisions for individuals.