10 steps to help you take control of your finances in uncertain times  

The COVID-19 pandemic is having far reaching effects on everything from employment to the overall economy. Daily life has been altered for many of us. Each of us has been taking steps to adapt as a result. We may feel as though we’re facing these difficulties alone, but many of us are experiencing these same challenges together. Below is a list of actions you can take to help you navigate the financial changes you may be experiencing. Some steps may not apply to you, but performing a few might help you make it through this difficult time.

One of the most disastrous results of the pandemic is that many people are out of work. Millions have lost their main source of income, causing financial uncertainty. With that uncertainty comes the stress and anxiety of worrying about how to pay for their lives. If you have lost your job or have had your hours reduced, take action now. Develop a plan for how you are going to adapt to your reduced income, and gain control of the situation. Ignoring the issue or putting off any necessary changes will only make it harder to recover down the road.

Step 1. Modify Your Spending

If your income has suddenly decreased, you are not likely to be able to sustain the same level of spending you are accustomed to. This does not mean that you should put all of your expenses on a credit card. You’ll eventually have to repay this debt, and many credit cards charge high interest rates on any balances. 

The most immediate impact you can have on your finances is to modify your spending. Start by tracking your expenses and looking for ways to cut back. Look through your checking account and credit card statements to get an idea of where your money goes. This is also a great way to spot automatic recurring payments that you may have forgotten about. 

Your goal is to balance your income and your spending. Make a list of things you need to spend money on versus things you want to spend money on. Some needs may include housing (rent or mortgage), health insurance premiums, and utility bills. Some wants may include restaurant take-out, vacations, gym memberships, and streaming services (do you really need Hulu and Netflix?). Once your list is made, identify the items that you can live without, and cut them from your budget.

Step 2: Negotiate Payments

Another step you can take towards modifying your spending is negotiating certain payments. Contact your landlord or property management company. Ask whether they may be able to temporarily reduce or waive your rent payments. Do the same with your utility bills and any services you contract for, like TV and cable. Many areas have suspended evictions and service disconnections as a result of the pandemic. This may give you extra time to come up with a plan. If you’ve been charged overdraft fees, call your bank and ask them to waive the fees. Do the same if they begin charging a monthly fee because your account balance has dropped below a certain level.

Modifying your spending is not as easy as it sounds. It is difficult to quickly adjust your habits and expectations. You may find, however, that after cutting certain expenses out of your life, you don’t miss them. Use this momentum to reduce your spending in other areas. It may take several rounds of evaluation and adjustment before you find the right balance of income and spending. 

Step 3. Examine Your Debt

For those of you who have regular debt payments, you may be able to temporarily reduce or suspend your payments. Be cautioned, however, that there is no automatic forgiveness for not paying a debt. You must receive approval from your lender before you suspend or reduce your debt payments. When you contact your lender, they may discuss an option called forbearance. This is the formal term for temporarily stopping or reducing your debt payments. Forbearance is generally offered for a defined period of time, after which you must resume making full debt payments. Additionally, you will be responsible for making up the missed payments, plus any interest, taxes, and insurance (if applicable).

If you anticipate having trouble making mortgage, credit card bill, or other debt payments, contact your lender. Ask for a payment waiver or forbearance on your loan. Some issuers are waiving late fees and even providing payment assistance, but you have to initiate the request. Again, don’t assume that you can reduce or stop your payments without talking to your lender first.

Step 4: Check On Your Student Loans

If you have federal student loans, the newly passed Coronavirus Aid, Relief, and Economic Security (CARES) Act contains provisions to assist borrowers. The act allows you to temporarily stop paying your federal student loans, through September 30, 2020. In addition, no interest will accrue on your federal student loans. It is important to stress that these two provisions do not apply to private loans. If your student loans have been sent to collections, the CARES Act suspends collection efforts for 60 days. This includes wage or tax refund garnishment.

Your eligibility for the federal student loan forgiveness program will not be affected if you choose to temporarily stop paying your federal student loans. Contact your federal student loan provider to request the 60-day administrative forbearance. You can also apply for an income-driven repayment plan or inquire about unemployment deferment. If you have private loans, call your loan provider and ask about payment modifications, forbearance options, and other types of assistance they may be able to offer.

Step 5. Use Caution With Debt Relief

Unfortunately, there are those unscrupulous souls out there who try to profit from others’ hardship. Many “debt relief” or “loan consolidation” companies capitalize on the feelings of uncertainty and anxiety that many borrowers have. Some of these companies are outright scams. However, even the legitimate ones are simply charging expensive fees to perform a service that you can do for yourself for free. Beware of solicitations (cold-calls, emails, social media ads, etc.) that promise immediate debt relief. Try to resist high pressure sales tactics to get you to sign up.

If you are having trouble paying your debt, the best thing you can do is contact your lender and ask them to modify your payment plan. It is also important that you not add to your debt, if at all possible. Work on reducing your expenses instead, because adding to your debt now will only make it harder to repay later on.

Step 6. Increase Income

In addition to cutting expenses and suspending debts payments, you may be able to find ways to increase your income. Many industries have all but shut down, so finding work right now may be especially difficult. However, while restaurants, hotels, and tourism-related businesses are not hiring, there may be employment opportunities in other areas. Some manufacturers are hiring extra employees to help produce personal protective equipment for hospital staff and first responders. Also, the demand for delivery drivers and personal shoppers has increased due to the number of individuals who can’t go to the grocery store or pick up their take-out due to health reasons.

Other individuals are capitalizing on a skill or expertise they have by marketing themselves on social media. Yoga instructors, fitness coaches, music teachers, and tutors are earning income by offering virtual classes or one-on-one online sessions with clients. While these efforts likely won’t replace all of their lost income, they will at least provide some relief. There are opportunities for employment out there, but it’s up to you to take the initiative to find them.

The CARES Act also includes recovery rebates for taxpayers to help keep them afloat. Taxpayers with an adjusted gross income of up to $75,000 can expect to receive a payment of $1,200 ($2,400 for couples with an AGI of up to $150,000). In addition, the government will provide payments of $500 for each child. These payments may not be available immediately, but taxpayers should be able to expect them to arrive in the near future.

Step 7. Explore Unemployment Benefits

If you are a regular employee, your employer has likely been paying unemployment insurance tax on your behalf, and you may qualify for unemployment benefits. For others, the CARES Act has expanded eligibility for the program, including those workers who are self-employed or are independent contractors. It has also increased the benefit amount and relaxed requirements for those who are seeking unemployment insurance coverage. Because my wife works at a school-related program, she is now unemployed, and will be for the foreseeable future. She receives a 1099 from her employer, so she is technically considered self-employed, and therefore normally not eligible to receive unemployment insurance. However, because of the CARES Act, she is now eligible.

In many states, you must apply for unemployment benefits to determine if you qualify, so use your state’s online system to apply. There are special sections of the application where you can indicate that your unemployment was due to COVID-19. Your benefit payment is calculated based on your income before you became unemployed, so each person’s benefit amount will likely be different. 

My wife has filed for unemployment through our state’s online system, but has not received any response yet. With millions of Americans filing for unemployment benefits, each states’ unemployment office is certainly overwhelmed with applications.  Unfortunately, because of this backlog, you may not get approval or a payment immediately, so reducing your expenses and attempting to find other income is still important. 

Step 8. Check Your Emergency Fund

If you’ve modified your spending, lowered or delayed your debt payments, and tried to increase your income, but are still unable to meet your day-to-day expenses, it may be time to tap your emergency fund, should you have one. Remember that your emergency fund is there for essential expenses, not optional ones. Review your list of wants and needs, and only spend money on the things you need.

It’s become evident in the past few weeks that emergency funds are important tools that help keep people financially solvent when they lose their jobs or can’t go to work. If your income still allows, recent events have shown us that there is no better time to start saving towards an emergency fund. Traditional guidance tells us to keep at least three to six months of living expenses in our emergency funds. However, because of the unknown duration of our current situation, it may make more sense to plan to have between 6 and 12 months of funds available. Of course, this all depends on the type of work you do, your ability to pivot to other sources of income, and your ability to drastically reduce expenses if need be. Read more about emergency funds here.

Step 9: Analyze Your Retirement Savings 

If you are still in college or are a recent graduate, chances are this is the first significant market downturn that you’ve experienced. It will also likely not be the last. Because you have a long time until you retire, your retirement portfolio has time to recover. Use this as a learning opportunity to help determine the level of investment risk you’re willing to take. The University of Missouri offers a risk tolerance assessment to help you plan your investment strategy. After you’re done, make sure your investment allocations match your risk tolerance. The fund company Vanguard provides a questionnaire to help you get an idea of the ideal allocation for your retirement portfolio according to your target retirement date and risk tolerance.

If you are within a few years of retirement, recent events may be causing anxiety and worry. My recently retired parents have seen the value of their nest egg drop by nearly one third. As hard as it may be to do, many experts recommend sticking with the investment plan you’ve established, and not reacting to emotion. Review your asset allocation and risk tolerance, and make sure they are still compatible with one another.

If you are still working and have extra income, the market downturn may be an opportune time to increase your contributions and capitalize on the down market. If you’re over 50 years old, you’re eligible to make catch-up contributions to your retirement accounts. It may also make sense to reduce the fees you’re paying by searching for similar investments with lower expense ratios and administrative fees. Finally, if you don’t expect your portfolio to recover by the time you need it, you may need to determine whether you need to keep working longer or reevaluate your anticipated spending in retirement.

Step 10: Get Help

If you have performed all of the above steps and still find that you can’t make ends meet, now is the time to ask for help. Seek out a credit counseling agency, a financial planner, or financial counselor to assist you in gaining control of your finances. Many organizations are providing free financial advice and mental health counseling for those affected by the pandemic. See below for links to these resources.

Conclusion

Eventually, businesses will reopen, employees will be hired back, and the market will begin to rise again. Taking steps now to protect your finances will go a long way to helping ensure that you remain financially solvent. While all of these steps may not be applicable to you, there are most certainly actions you can take to reduce financial stress now and help your future self come out of this successfully.

Resources

The National Foundation for Credit Counseling can connect you with a free, nonprofit, debt and credit counselor.

The Financial Planning Association is currently compiling a list of certified financial planners willing to provide “short-term, no-strings-attached financial planning guidance to those who need it,” including “underserved individuals who are going to be most impacted financially by COVID-19 and the economic turmoil it is causing.”

The Substance Abuse and Mental Health Administration’s Disaster Distress Helpline is “a 24/7, 365 day a year counseling and support to people experiencing emotional distress related to natural or human-caused disasters.”