The coronavirus has disrupted life throughout America, but various common-sense tips can help keep your finances under control.
Fortunately, most of the following checklist items are reasonably easy to implement, without requiring much heavy lifting. Many are actions you should have been taking anyway, but now they’re more urgent.
If you just lost your job or expect that to happen soon, a couple of these tips might not be practical. But most of the suggestions below don’t require much income and, in fact, could help cut expenses.
Build up an emergency cash fund
Financial advisers of all stripes had urged Americans to build up their rainy-day funds over the past decade or so, when times were relatively good. Now that clouds have gathered over the economy, the need is even more pressing.
Emergency money — preferably equal to at least three months of your normal spending needs — is critical now that the economy appears tipping over into a coronavirus-induced recession. Cash on hand can mean the difference between paying bills on time and having to run up balances on high-interest credit cards or resort to other costly options such as auto-title loans, payday loans or pawn shops.
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As part of a new COVID-19 assistance guide for cash-strapped people, credit.org suggests pausing all “fun money” and travel budgeting and directing those outlays to building up an emergency fund.
Check on your safe-deposit box
The coronavirus threat is changing banking operations, at least in the short term. Many banks have temporarily closed certain branches, while others have trimmed lobby hours.
I wrote recently about how this affected a retired man, Ray McCarty, when Chase closed his branch in Bullhead City, Arizona, putting key documents such as health directives, passports and auto and house title loans out of reach. Chase reopened the branch within a few days, but the lesson is clear: If you have a safe-deposit box, go visit it soon to see which key items you might need to access within the next couple of months, and plan ahead.
If you don’t have a safe-deposit box, it might be time to get one to safeguard your key possessions in an uncertain time.
Keep some cash on hand
If bank lobbies can temporarily shut down, putting safe-deposit boxes out of reach, it also suggests that ATMs can go out of service from time to time. Given all the uncertainty out there, it’s probably a good idea to have a couple hundred dollars in cash available. This doesn’t mean hiding it under a mattress like many people did during the Depression — a foolish choice for long-term investment money — but rather a means of paying for small-dollar items in a pinch.
Sure, credit cards, debit cards and electronic payment options still are the way to go and will remain dominant means of payment. But having some cash on hand can ease transaction problems in case certain businesses are disrupted.
Assess your insurance needs
It’s a good idea to evaluate your property and casualty insurance needs once a year or so anyway. The coronavirus upheavals make it especially timely.
Auto insurance is a good example. If you’re now working at home like a lot of people, you probably are driving a lot less than before. That could result in savings in terms of reduced automobile premiums, so check with your agent for a discount or shop around.
So too if your housing situation has changed. It’s unclear yet if home prices will rise or fall, which in itself could justify higher or lower coverage amounts. But you might have a new roommate under your roof to help make ends meet. If so, something like umbrella coverage, offering expanded financial protection, is something to consider.
Update your health and other directives
As with an insurance checkup, now is the time to update or, if necessary, draw up key estate-planning documents. A will or living trust are among essential documents. But during a time like now, with increased infections, hospitalizations and fatalities, look into health-care and financial powers of attorney. These documents enable another trusted individual to make key decisions on your behalf if you become incapacitated.
While you’re at it, review the person or people whom you have named as beneficiaries on insurance policies, on Individual Retirement Accounts, on your 401(k) plan at work and so on. Make changes if warranted.
And in states such as Arizona that allow them, it might be smart to draft or update a beneficiary deed, allowing a home to pass to beneficiaries outside of probate.
Evaluate your borrowing options
Interest rates have dropped so low that all sorts of lending options could make sense, from refinancing your mortgage or seeking a lower-cost credit card. However, there’s probably little need to rush out to borrow, as rates could stay low for a long time. You also need income to pay back loans, so if your job is in jeopardy, it might pay to wait.
If you need to borrow money, one option is taking a loan against your 401(k) balance. This is often a quick, easy way to access cash in a pinch, as there’s no loan application and no credit-report impact. But if you can’t pay back the balance (in the event of a layoff, for example), that amount would become taxable and, possibly, subject to a 10% early-distribution penalty.
The proposed Coronavirus Aid, Relief and Economic Security Act, which was pending as of March 26, includes a provision that would increase the borrowing amount on 401(k) loans to $100,000 from $50,000, said Ed Slott, founder of IRAHelp.com. But he discourages people from taking loans except as a last resort — partly because of possible tax consequences and partly because it could impede growth of their accounts.
Redo your budget
One way to assess your changing financial needs is to check where you’re spending money now compared with a couple months ago. Chances are, you are spending a lot less on restaurant meals, bar visits, movie tickets, hair salons and travel but possibly more for in-home entertainment, groceries, health-care expenses and utilities. Some of these spending adjustments will prove temporary but others might be permanent shifts. People adapt.
Anyway, drawing up a budget can help you tell where the money is going now. Remember to factor in payments that you might make only once every three to six months such as property-tax bills and insurance payments.
Take a financial inventory
With so much in flux now, you might need to locate key documents in a hurry, or provide instructions for others to do it for you. In addition to estate-planning directives, these can include bank, brokerage and retirement accounts as well as insurance policies, mortgage information, business records and more. Compile a list of important contacts such as your insurance agent, accountant, attorney, doctors and veterinarians.
While you’re at it, look to close accounts or subscriptions that you don’t need, whether to gyms, publications, shopping services, travel clubs or whatever. During times of change, like now, you don’t need to be wasting money or dealing with extra financial clutter.
Reach Wiles at [email protected] or 602-444-8616.