Broker Check

Disinfecting finances during quarantine

July 28, 2020

How many hours have you spent at home sheltering in place because of the global coronavirus pandemic? It’s not very exciting to sit around inside, but all this social distancing does open up a convenient opportunity to review your finances and make sure they’re “quarantine clean.”

Whether you’ve lost some of your income because you’re working less, or if you’ve been hit hard in the stock market, you can use this time to reassess your financial standings and maybe even begin developing a new plan that fits your current situation. Here are a few things to think about:

Dust off your emergency fund. This virus has been a rude awakening about the importance of having extra money tucked away for a rainy day. Without an extra stash of cash, you may find yourself relying on credit cards or borrowing against investments, both of which can be easy options in the short-term but costly in the long-run. If you have an emergency fund you’ve tapped into, great job – it’s come in handy, exactly as you planned. Just remember to set a new goal to replenish it as soon as things ease up. If you don’t have an emergency fund, make it a top priority as soon as you can. Even saving a little bit at a time can help.

Soak up the CARES Act. If you don’t have an emergency fund, it’s important to focus on living lean so you don’t create debt that makes it hard to catch up again. Instead, let’s talk about whether you might be eligible for financial relief provided by these assistance programs offered by the recently passed federal stimulus packages:

  • Stimulus checks
  • Extended and expanded unemployment benefits
  • Option to skip RMDs for 2020
  • Mortgage forbearances on FHA loans
  • Penalty-free early distributions against retirement accounts
  • Penalty-free loans against workplace retirement accounts up to $100,000
  • A one-year delay on existing retirement account loan repayments
  • Small business loans

Update your cash-flow projections and budget. Moneywise, what goes out must be equal to or less than what’s coming in. But deciding which expenses to omit when downsizing your budget can be tricky, and it really comes down to evaluating your needs vs. your wants. Fortunately, many of us are already spending less because we’re staying home more. Taking a look at what you’ve temporarily cut out during this pandemic can help you see more clearly what you can live without.

Opt-in to available payment deferrals. Many lenders are trying to accommodate those who’ve been financially impacted by the pandemic through granting payment deferrals. It’s definitely worth it to look into these if you simply cannot afford to make your payments. But it’s imperative to read the fine print so you know exactly what’s expected of you as part of the deal. Some payment deferrals add the missed payments to the end of the loan and incur extra interest charges. Others offer deferment periods where no late fees are charged, but all payments may be due at the end of the deferral period instead of at the end of the loan. Know their rules, your limits and overall, what’s realistic.

Review your real estate risks. Given that mortgages and rental payments are usually the highest expenses and biggest risks, these payments should be your top priority. If your income isn’t going to cover it, reach out to your landlord or your mortgage company before you’ve missed a payment to see if they can grant deferrals, reduce your mortgage payments to interest only, or negotiate a temporary discount on your rent. Just be sure to get ahead of it because lenders are extremely busy and it may take some time to make adjustments.

Check in for advice. Financial planning helps us prepare for and face life’s curve balls, since we’re all faced with financial challenges at some point in our lives. By evaluating your assets, weighing your risks and reworking your goals, together we can adjust your financial plans accordingly and help keep things moving in the right direction.

Many people have been impacted in one way or another by the virus so there’s no time like the present to prepare for any fallout, big or small. If you can execute all six steps above, you’ll be set up for a strong financial foundation once again that can help keep you and your loved ones protected.

Stay well,