May 19, 2020
As if managing money wasn't hard enough, chances are you have some new obstacles to contend with during the coronavirus outbreak.
Financial unrest is an unfortunate reality right now, but that doesn't mean you should throw caution to the wind. You still have a chance to be thoughtful about the money you have coming in, whether you're earning a reduced salary, collecting unemployment benefits, or simply preparing for an uncertain future.
Here are five questions to ask yourself to figure out where your money should go first.
1. Does my current income cover basic living expenses?
If no ... consider asking for payment assistance on your bills. If you're a homeowner with a federally backed mortgage, you have the right to ask your lender to defer your payments for up to 12 months. If your loan is from Fannie Mae or Freddie Mac, you have options for when and how you want to repay those suspended payments.
If you're a renter, don't hesitate to talk to your landlord — you may be able to negotiate a lower payment until you can get back on your feet, or skip it all together. Numerous cities, including Los Angeles and New York City, have put a temporary ban on evictions for tenants who can't pay rent due to COVID-19 related job loss.
If yes ...
2. Do I have at least 3 months' worth of expenses in savings?
If no ... start building an emergency fund. After covering your immediate expenses, like housing and food, any leftover cash should go into a high-yield savings account that you can tap quickly whenever you need it. The coronavirus pandemic led to a record 20.5 million jobs lost in April, and the losses are still piling up. Your emergency fund gives you a softer, less scary place to land if the unexpected happens.
Some experts say you shouldn't stop at three months' worth of expenses — or even six months'. The more money you can save in times like these, the better.
If yes ...
3. Do I have credit-card debt?
If yes ... keep making payments. Your interest rate may have fallen in the last several weeks, but chances are it's still too high from an opportunity cost perspective. According to CreditCards.com, the average annual percentage rate (APR) is about 16% as of May 13. That's about double the average return of the stock market.
If you've freed up some cash flow during the pandemic, put anything extra toward your credit-card balance. If you absolutely can't make payments, call your bank and ask what assistance they're offering. Many banks will waive interest charges and late fees or even grant deferment due to financial hardship.
If no ...
4. Do I have an investment account?
If no ... start one. If you're earning a paycheck and your employer offers a retirement account, what are you waiting for? Set up an automatic contribution to put a portion of your pre-tax income into a retirement plan, especially if your company offers a match.
By putting a fixed dollar amount into the same investment every month — a strategy known as dollar-cost averaging — you're buying into the market regardless of where prices are. This eliminates the tendency to "time the market" and invest emotionally or speculatively.
If yes ...
5. What other financial goals do I want to prioritize?
If all your current needs are met and you're putting some of your income toward building wealth for the future, now is a good opportunity to consider what other financial goals you want to prioritize.
Maybe the coronavirus crisis has encouraged you to spend more money on local businesses, donate to charitable causes, or try new hobbies or business ventures. Or perhaps you're more driven than ever to escape the city and buy a house in the country. Whatever it is, you're in a position to reorganize your budget or craft a plan.