Thursday, September 3, 2020

COVID-19 Financial Tips for the “Financially Unscathed”


Americans have lived with COVID-19 for seven months. Many have experienced a loss or reduction of income and related impacts such as food insecurity, depletion of savings, and outstanding payments for rent, utilities, loans, and other expenses. Conversely, there are those who have seen little or no negative financial effects related to the pandemic. They have jobs or pensions and their investments have “bounced back” from March-April losses.

I recently presented a one-hour webinar for Rutgers Cooperative Extension called “Navigating the Two Financial Faces of COVID-19.” America is increasingly experiencing a bifurcation of impacts resulting from the pandemic. In a number of previous posts, I addressed the first face of COVID-19, where people are struggling financially. In this post, I share tips for the second face, the “financially unscathed” who are doing as good, or even better, than before.

Below are ten strategies to consider if you have been fortunate enough to be navigating COVID-19 without experiencing any major financial effects:

¨      Beef Up Your Emergency Fund- Save more, if possible, because economic conditions (both personal and global) can change. Experts are now recommending larger emergency funds equaling six to nine months expenses (or more), given the extent of COVID-19 related job losses. Save as much as you can when you can.

¨      Invest in Your Human Capital- “Upskill” yourself in case you need to eventually find a new job in a very uncertain economy. Strategies include online courses, computer technology training, and certification programs. Focus on filling gaps in your skill set and making yourself marketable to future employers.

¨      Consider Refinancing Your Mortgage- Consider replacing your current mortgage with a lower interest loan if the math makes sense (i.e., the interest rate savings for a projected loan term exceeds the closing costs). Mortgage interest rates are at currently at historic lows, which makes homeownership attractive.

¨      Make Prudent Home Improvements- Consider making home improvements that simultaneously increase the comfort of a home and provide a high return on investment (ROI) if a move becomes necessary. Examples include bathroom and kitchen remodeling, landscaping, and the addition of a deck or patio. Many people are doing this by reallocating funds that were previously budgeted for cancelled travel and entertainment plans.

¨      Get Estate Plans in Order- Review your existing estate plans and revise them, if necessary. Witnessing over 185,000 Americans dead due to COVID-19 is a powerful reminder to have key legal documents (e.g., will, living will, and durable power of attorney) in place. Expect some delays as many attorneys are swamped.

¨      Assess Investment Risk Tolerance- Accept the possibility that the stock market could be volatile for some time due to uncertainty about a COVID-19 vaccine, the 2020 election results, and other factors. Take the University of Missouri Investment Risk Tolerance Assessment to get an analysis of your risk tolerance.

¨      Rebalance Your Investment Portfolio- Develop “triggers” to rebalance your investments (e.g., the balance in a retirement plan) to their original asset class weightings (e.g., 50% stock, 30% bonds, 20% cash). Some people do this automatically on a set day each year while others rebalance when weights shift by a certain percentage.

¨      Increase Retirement Savings- Consider upping retirement savings plan contributions if COVID-19 has resulted in increased income and/or reduced expenses (e.g., commuting and eating out). Increasing savings by just 1% more of pay can result in tens of thousands of dollars of extra savings over several decades.

¨      Be Philanthropic- Reap the financial benefits of contributions to qualified 501(c)(3) organizations that can help others who are hurting due to COVID-19. For the 2020 tax year, as a result of the CARES Act, taxpayers can take an “above the line deduction” and write off up to $300 of cash donations without having to itemize.

¨      Become a “Personal Finance Student”- Learn at least one new thing every day about personal finance. Increased knowledge can foster preparedness which can build resilience. Information is available via websites, social media, radio and television shows, webinars, podcasts, and other information delivery methods.

For additional information, this article provides tips for people who are financially unscathed by the pandemic. The handout for the Rutgers Cooperative Extension webinar, referenced above, is another resource.

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