Given the rapidly changing economic, social, and political environment due to the pandemic, this article has been updated since it was first published to reflect the most up-to-date information.
2020 started out strong. With an election cycle in full swing, stocks were trading at all-time highs, unemployment was at historically low levels, and consumer confidence was relatively robust. That quickly changed when the world received news of an unknown coronavirus (COVID-19) pathogen outbreak.
With vaccination roll-outs and government relief packages, there is a light at the end of this tunnel. We’ll get through COVID-19 soon. However, in the meantime, the US is still facing unprecedented unemployment struggles. If you’ve been laid off — or just want to protect your income through this pandemic — here are five things you can proactively do at home right now to tighten up your finances and prepare for what’s ahead.
It is completely normal to feel uncertain and worried right now. Here is a proactive approach you can take right now:
The $2 trillion Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020 to cushion individuals and businesses from immediate losses, and to help them comply with public health guidelines and mandates. Make sure you know what’s in the CARES Act and how you could benefit from:
On March 11, 2021, the government signed a second economic relief, or stimulus, plan—The American Rescue Plan—marking the third payments to hit US bank accounts. Under this $1.9 trillion plan, the Internal Revenue Service is currently issuing stimulus payments for $1,400 per individual. If you haven’t received your stimulus payments yet, use the Get My Payment tool to track the status.
Before the pandemic, nearly 28% of adults had no emergency savings and only one in four could cover three months worth of expenses, according to a 2019 Bankrate survey. No matter where you’re at today, you can take steps to conserve cash and build savings.
When the world feels uncertain and dangerous, people fear shortages of essential supplies and turn to online “retail therapy,” or outright panic-buying, as a way to comfort themselves and regain a sense of control. Thankfully, we’re largely past the panic buying stage of the pandemic, but boredom shopping can be a budget buster. Stuck at home, you likely feel more tempted than ever to online shop. To curb the urge, try waiting 24-hours before making any purchases. More often than not, you’ll realize you didn’t want the item in the first place.
In addition to rent, lease, and mortgage relief provided by the CARES Act, many public utilities (power, gas, water), phone, and internet service providers have hardship plans in place for customers. But it won’t happen automatically; you need to get them on the phone and ask. Putting gym, spa, music club and other memberships on hold for a spell can trim expenses even further. And look for deals from retailers you regularly frequent to help you cut expenses now, conserving cash you may need for later. Check out our guide to other financial resources and assistance you may need right now.
Pandemic or not, creating a budget—and sticking to it—is one of the best things you can do for your financial health and also your end of year financial checklist. Your budget doesn’t need to be complicated or time consuming. You can use an app, an Excel spreadsheet, or simply take pencil to paper. The key is understanding what’s coming in, and what’s going out. Then look at ways to cut back where you’re overspending and make quick adjustments to help you build savings.
Getting a handle on your debt is another important step in preparing for uncertain times. While supportive measures being put in place by Federal Reserve, government and state officials will (hopefully) make things easier, here’s what else you can do:
Compile a list of your current debts, including compounding interest rates you’re paying, monthly payment amounts, and due dates. Seeing it all in one place can help you assess your situation and create a game plan.
As part of the CARES Act, all federal student loan payments are suspended through the end of September. Keep tabs on what that could mean for you here.
While it’s not clear yet how the recent 1% drop in federal fund rates will impact mortgage rates going forward, if you’re paying high or variable interest rates on your home improvement loan or auto loan, ask your lenders about personal loan refinancing. Rates may be lower now than when you originally applied, and you could save hundreds, or even thousands, over the life of your loan. (Look into refinancing your car loan, too.)
If you can afford to do so, paying off your credit card debt now can save in interest costs, which will put more money in your pocket if a recession becomes a reality. But if you can’t afford to pay off your credit cards now, or you’re worried about the future of your income or if you’re living on one income, you can still make moves to lower your overall costs.
A balance transfer credit card allows you to shift existing credit card debt to a new line of credit, often with a lower introductory interest rate. If you can pay off the debt within the introductory period, you’ll save on interest. A debt consolidation personal loan will allow you to pay off high-interest credit card debt with a lump sum, typically at a much lower interest rate. You’ll also be able to consolidate several monthly payments into one single, more manageable payment you can make over several months or years. Learn more about the difference between a balance transfer credit card and a balance transfer loan.
According to a recent J.D. Power Coronavirus Financial Health Pulse survey (March 16, 2020), 15% of respondents expect to borrow money in the coming months. Now is a good time to review your credit, understand your credit scores, and be ready should you need to borrow in the future.
Pull your credit reports from the three major credit bureaus, Equifax, TransUnion, and Experian. Due to the pandemic, you can request free copies of your credit report once per week. Look for any mistakes or errors on your reports and file disputes to have those removed. By law, the credit bureaus have 30 days to investigate your claim and you can file all disputes online.
If you have any past due accounts, work on getting those current. Even making the minimum payment may be enough to bring your account up to date and improve your credit score.
If you can afford to, paying down some of your debt can immediately improve your debt-to-income ratio. DTI is a major factor in your credit score and your ability to borrow funds. Aim to keep your revolving debt at 30% (or less) of your available credit if you can.
The most important thing to remember is not to panic. While the news coming from Wall Street isn’t great lately, stock markets ebb and flow. We’ve survived crashes and recovered from pandemics before, and we will again. If you can, talk to a financial adviser before you make any big moves. They’re ready and willing to help you decide what steps to take and also how to avoid any loan scams!
If you have an employer-sponsored 401(k), keep socking away those retirement investments. Your 401(k) is taken out pretax, so you’re actually lowering your overall tax burden and building a nest egg for the future.
While the news continues to be stressful, remember that the pandemic (and economic chaos) will end. By taking some proactive steps today, you can help safeguard your family against a downturn in the economy with irregular income budgeting. In the meantime, wear a mask in public or when around others not in your household, and practice social distancing. We’re all in this together and we’re working to help you in every way we possibly can.
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