Nearly nine out of 10 Americans report stress on their personal finances due to the pandemic.1 It can be challenging to prioritize your finances to support both your immediate needs and your long-term plans — and during an economic recession that balancing act can feel even more exacting. Through planning, understanding your real needs, and preparing for the future, there are ways to weather the storm and navigate uncertain times. Here’s how.
Refine your budget and address any urgent cashflow needs:
If you’ve lost your job or are experiencing other financial hardships during the pandemic, there are still steps you can take to plan for your cashflow needs. If you’re having issues making ends meet, contact your credit card companies or other debtholders to discuss your options and ask for assistance. Some credit card companies are offering flexibility for payments on a case-by-case basis. You can also negotiate payment dates or deadlines for your monthly bills to better work with your cash flow.
“I would look at this time as an opportunity to visit your monthly expenditures and see where you can lower some to relieve some stress,” says Jeffrey Benowitz, CLU, ChFC, a financial representative with Certified Financial Services based in Paramus, NJ. “Even though you may want to support your local restaurant by ordering in, by stocking up on food and cooking each night you should be able to save money immediately.” Under shelter-in-place orders and social distancing, it’s likely that you’re spending money in different ways. Contact your gym to freeze your membership and shift funds set aside for children’s group activities like soccer or summer camp.
“I think it is vitally important to continually look at your budget,” Jeffrey notes. “Even though the majority of people are self-quarantining one could get caught spending money by unnecessarily shopping online due to boredom or ‘retail therapy.’ Try to avoid this if you can. Only purchase what is absolutely necessary.” By prioritizing your spending, you’ll be able increase savings or better cover any immediate household needs.
Develop a contingency budget
Even if you don’t need to make immediate spending cuts, it’s important to know what your minimum budget needs are should your income change or should you be faced with an unexpected hardship. Having a contingency or back-up budget can help you understand what is essential and can help inform you if your emergency savings are adequate.
Start by reviewing your budget to identify which expenses are essential for your household and which can be removed or reduced. For instance, you could remove expenses like streaming services, ordering food out, or other entertainment costs. You could reduce costs by changing your phone or cable plan or shifting to a one-car household by selling one car and sharing a car with your spouse or partner. By identifying what your minimal cost of living is, you’ll be better informed should you suffer a hardship like a job loss or a reduction in income.
And, if the time comes where you need to adopt your reduced budget, consider continuing it to pay off debt or increase savings. “Once you have made some changes in your monthly expenses to save you money, try continuing in this fashion once this situation resolves itself,” Jeffrey continues. “Get into a habit of saving and you will find yourself in a better financial position if an emergency should ever arise again.”
While you address your immediate needs, it’s still important to plan for the future. Don’t stop investing in your retirement plan, even if your contributions might need to be smaller, and delay withdrawing from retirement funds if not necessary to help level off any losses faced during the pandemic. Withdrawals from retirement plans and IRAs are treated differently under the CARES Act, so stay up-to-date on relevant legislation. Work with a financial representative to determine what will best serve your unique financial goals based on your income and how far off your retirement is.
A global pandemic and a recession are considered an emergency, so if you need to tap into your emergency savings, now is an appropriate time. Just be sure that your long-term plan pays back what you used and builds up your emergency savings should you need the reserve again.
By taking action, staying the course, and planning ahead, you can make smart financial decisions to support your and your loved ones now and in the future.