During the past six months, I have presented about a dozen COVID-19 and Your Finances classes and webinars, including this webinar for Cooperative Extension colleagues. I began each presentation by describing similarities between transitions in later life, described in my new book Flipping a Switch, and those experienced by Americans as a result of COVID-19.
Examples of these similar adjustments include managing money with a changed income, creating a “paycheck” from multiple income sources, keeping busy, too much “togetherness,” and becoming “fraud bait.” People often have more free time for health maintenance activities (e.g., exercise and healthy meal preparation) as a result of not commuting.
In my presentations, I describe three categories of Americans according to financial impacts of COVID-19: 1. Reduced Income and Struggling, 2. Stable Income, But Anxious, and 3. Increased Income with Opportunities. I then describe the following financial tips for all Americans and for those in each of the three impact categories:
¨ Get your estate plans in order: will, living will, and durable power of attorney. Over 550,000 COVID-19 victims (and counting) as of 3/31/21 is a major “wake-up” call to not leave any financial “loose ends.”
¨ Prepare a consolidated list of beneficiaries for life insurance policies and retirement savings plans.
¨ Prepare a list of digital assets with user names, PINs, passwords, and other account log-in data.
¨ Determine the impact of COVID-19, the CARES Act, and the American Rescue Act on your income taxes. For example, the charitable donation write-off for non-itemizers and arranging adequate tax withholding.
¨ Create an updated spending plan (budget) to reflect income/expense changes as a result of COVID-19.
¨ Use the Bill Calendar from the Consumer Financial Protection Bureau (CFPB) to summarize expenses.
¨ Identify and act on things that you can control (health practices, saving, spending, gifting, mindset).
¨ Get comfortable making financial and lifestyle plans again after a year of living life in a “holding pattern.”
Group 1: Reduced Income and Struggling
¨ List, and then prioritize, three expense categories: needs (e.g., food, housing, utilities) obligations (e.g., court fees/fines, child support, insurance, taxes, secured and unsecured debts), and wants (everything else).
¨ Reach out for help from government and non-profit agencies. Call 211 or visit www.211.org to find local services.
¨ Reduce or eliminate subscription services and recurring payments (e.g., gym, satellite radio, streaming TV).
¨ Assess cash flow resources (e.g., emergency fund, cash value life insurance, retirement savings plan).
¨ Access local, state, and federal resources as needed (e.g., unemployment benefits and stimulus payments).
¨ Marshall social capital resources through family and community connections.
Group 2: Stable Income, But Anxious
¨ Prepare for a furlough: multiply daily pay by a number of furlough days to determine potential lost income.
¨ Cut spending to build up an emergency fund and/or accelerate debt repayment using PowerPay as a guide.
¨ Consider making human capital investments (e.g., certification programs, in-service training, short courses).
¨ Start a “side hustle” (freelancing) for additional money to save and to have “fall back” income, if needed.
¨ Consider refinancing your mortgage to take advantage of current low interest rates.
Group 3: Increased Income with Opportunities
¨ Save/invest positive cash flow resulting from increased income and/or reduced expenses.
¨ Make prudent home improvements with a high return on investment (e.g., kitchen and bath remodeling).
¨ Be careful about co-signing, “loans” that become gifts, and/or long-term support of family members. Use this new publication, Tips for Managing Family Lending and Borrowing, from the CFPB to inform financial arrangements.
¨ Consider charitable gifting and serious philanthropic methods (e.g., qualified charitable distributions, donating appreciated securities, and establishing a donor advised fund or charitable trust) to help others.
Every American has been affected by COVID-19 in one or more ways: health, employment, income and assets, education, relationships, goal-attainment, and more. As noted above, some observers have called COVID-19 lockdowns and layoffs a preview or “dress rehearsal” for transitions in later life. Many are also predicting a disparate “K-shaped” recovery.
However COVID-19 has affected your finances, develop an action plan to move forward financially. Your future depends on it!