Thursday, August 6, 2020
COVID-19 Personal Finance Q and A
COVID-19 reached American soil six months ago and business closures and lockdowns resulting in months of reduced (or no) income have thrown the finances of millions of households into a tailspin. What to do? Develop plans (and back-up plans), get help (if needed), and focus on things you can control. In this post, I answer some frequent questions that people are asking.
Q: The extra $600 a week in unemployment benefits expired on 7/31/20. What should people do?
Marshall resources. Look for sources of monetary support including family members, government offices, and non-profit agencies in your community. Examples include food pantries, job training programs, and utility assistance programs. For information about local resources, call 211 or visit www.211.org or reach out directly to local human services agencies.
Q: What about budgeting? Should people even bother to try budgeting during the pandemic?
Yes, indeed. Budgeting is more critical now than ever. Make your best estimate of current income and expenses and consider various ways to close the gap. For example, money saved by getting free food at a food pantry or by spending less on child care, gas, meals eaten out, and travel preserves income for rent or utility payments.
Q: How should people set bill-paying priorities?
Make three lists of expenses: Needs that are necessary for survival (e.g., rent, utilities, food, medication copays, transportation, phone, internet, and health insurance), Obligations (e.g., debts such as credit cards and student loans, child support, taxes, and dues), and Wants (expenses that are not required for survival or you have no obligation to pay). Next, starting with needs, put expenses in priority order and pay bills until money runs out.
Q: How do people know which needs should come before others?
One way to prioritize expenses is to consider the consequences of non-payment for each expense. What is the worst thing that could happen if a certain expense is not paid? With this “lens,” food is always the highest priority need. People need food to survive. However, food may be available from food pantries, which can fee up cash for other basic needs such as housing.
Q: What should people do to protect their credit?
Contact your creditors before you are late with a payment and discuss options for leniency and a modified repayment plan. Confirm all agreements with creditors in writing with a follow-up letter or e-mail and make note of the contact date and company representative. On-time payment is a key factor in credit scoring so make sure your credit history is not damaged. Under the CARES Act, Americans can now receive a free credit report weekly to keep tabs on their credit history.
Q: What else can people do to cope financially with COVID-19?
Assess household resources. Calculate personal or household net worth (assets minus debts) to get a “snapshot” of your finances. Pay particular attention to cash on hand, emergency fund savings, and cash value life insurance and retirement savings plan assets that could be borrowed against, if necessary.
Q: Do you have any other COVID-19 financial advice?
Take advantage of employer health insurance for as long as it lasts. After that, seek new health care coverage. Four options for laid off workers are: a spouse’s employer plan, Medicaid (if eligible), COBRA through a previous employer (if that employer still exists), and Marketplace coverage under the Affordable Care Act. ACA options are usually cheaper, especially if you qualify for subsidies with a reduced income. Check out www.healthcare.gov for additional information.
Q: Is there anything else that people can do to improve their financial security?
Experts recommend “upskilling” yourself. Use newly found free time to prepare yourself for re-employment with your current employer or elsewhere. Focus on gaps in your skill set and making yourself as marketable as possible (e.g., certification program credentials and new technology skills). In addition, set a goal to learn something new about personal finance every day. Financial knowledge helps build financial preparedness, which can increase resilience in tough times.
Q: What are some of the biggest non-financial issues that people are facing related to COVID-19?
Lack of a daily schedule is a big issue for people who have been laid off or furloughed. Experts recommend planning out your days to avoid feeling “unmoored” from normal routines. Include some type of physical activity every day and one or two other big “time chunks” such as continuing education or virtual or socially-distanced socialization.
Q: What can people do to not feel so “out of control”?
Control controllable things. Get out a sheet of paper and draw a table with three columns: Control, Adapt, and Monitor. List events and actions you have control over in column 1 (e.g., scheduling daily routines, self-care activities, home organization tasks, and new spending patterns), followed by those you can adapt to in column 2 (e.g., working and school from home), and those you should pay attention to in column 3 (e.g., state COVID-19 laws and local return-to-school (or not) policies).
I recently participated as an invited panelist on an Experian #credit chat (Twitter chat) titled How to Make Extra Money During COVID-19 . ...
I recently attended a webinar for financial educators about Trends in Personal Finance by Next Gen Personal Finance (NGPF) founder Tim Ra...
Even before the COVID-19 pandemic took hold, many Americans were struggling financially. According to the Federal Reserve Report on the E...
Heuristics are mental shortcuts that people use in daily life. An article from the Association for Psychological Science includes a story...