What should you do to effectively mitigate the financial impacts of the pandemic?
The coronavirus (COVID-19) outbreak is causing widespread concern and economic hardship for consumers, businesses, and communities across the globe.
The long-term economic fallout from the coronavirus is still unknown, but many people may already feel stretched. As one-third of Americans wouldn’t be able to cover their general living expenses if they missed a paycheck, making ends meet as a result of lost shifts or a layoff can be financially and emotionally stressful.
Regardless of the current or coming health effects of COVID-19 on you or your family, the pandemic has affected and will likely continue to affect household finances for years to come. Having a plan, prioritizing spending, and using resources efficiently will be key to your financial stability.
With that in mind, here are some ways to help with making ends meet in these uncertain times.
Organize Your Finances
To create your budget, start by listing sources of income, like severance or unemployment insurance, and their duration. Next, list all your current monthly expenses. These include fixed costs like mortgage, rent, utilities, insurance payments, groceries, and gasoline, as well as discretionary items like entertainment or dining out.
To improve monthly cashflow during your span of unemployment, forego any nonessential monthly expenses. Generally, this means removing discretionary expenses, but it’s important to be judicious in reviewing fixed costs as well.
The goal in preparing a budget is to determine if you have a monthly cashflow shortage, and for how long. It’s recommended to project your sources of income and expenses for the next 12-18 months. In the event you end up having a shortage, determine how much more money you will need to draw upon from other sources such as an emergency fund, taxable investment account or retirement account.
You may not be able to cut an expense by $500, but you may be able to identify five monthly expenditures you could reduce by $100. Forgive yourself if you slip up. Sticking to a budget is not always easy, and there may be days when your resolve falters. If that happens, remind yourself of how much you have to gain by reaching your goals. Then examine your spending patterns to see why you overspent. You may need to modify your budget or your behavior—if you can’t go into sporting supply stores without buying something, stop visiting them.
Create Emergency Fund
First and foremost, if you don’t have an emergency fund, stop and create one now. Start cutting expenses and pay minimum payments on debt. Use the extra cash flow to put into an emergency fund which can later act as savings if not used during this time.
This budget should be extra strict during this time. Stray away from online purchases, ordering take-out, spending money that you can potentially put into your emergency fund.
Having an emergency fund gives you the peace of mind to know that should something truly awful happen, such as losing your job, you can worry about how to deal with the emergency itself and not worry about how you’re going to survive financially.
Above all else, make sure your immediate needs are met. This includes food, monthly bills, and rent or mortgage
“How big should my emergency fund be?“
While a person’s emergency fund will vary from situation to situation, most financial experts agree that a fully stocked emergency fund should hold between three to eight months of monthly expenses.
Navigating the New Normal
Communicate With Your service Providers
If you’re concerned about your ability to pay upcoming bills, talk to your creditors. Many banks and lenders have announced relief policies to help ease the burden during this time. First, you’ll need to explain your financial situation to them. Then, ask to suspend payments, interest, and fees on loans and credit cards. Additionally, speak to your monthly service providers like the cable and telephone companies about lowering your rates.
As always, it’s better to inform the utility or internet service provider you work with about any financial hardship before skipping a payment.
Ask For Help
Ask for help where you need it most. Call your bank, mortgage company, electricity company, and see how can they help you during this time. You’ll likely have to pick up the phone and ask for help, but if you do, the changes can be really impactful.