The current economic crisis across the world due to the COVID-19 pandemic has already changed our reality. Plenty of people have lost their jobs temporarily or permanently and thousands of citizens are still scared of how things might change in the nearest future because of the pay cuts.
It is scary and devastating to live in the new world with no stability at all. Many employers who paid their employees for the first months of lockdown have become reluctant to continue the payments.
It is understandable as businesses don’t have profits as consumers don’t spend money anymore. As a result, people started changing their financial habits in order to adapt to new rules and survive.
Here are the best practical tips during the current crisis that can be useful for improving your personal finances and stability.
“Everyone is dealing with different circumstances during and will again after the virus. Many clients are still working, doing less commuting, and saving money right now, so we want to be sure that savings will be channeled into goals based on their values and dreams,” said
Nadine Marie Burns.
Current Economic Situation and Consequences for Personal Finances
The number of citizens who applied for unemployment benefits in March was over 10 million, which was a new record. Millions of Americans were furloughed or laid off due to the pandemic. The efforts taken by the government to improve the situation led to some positive effects in the labor market.
“Nobody likes to necessarily plan for the unexpected because it can be unpleasant, intimidating, overwhelming, and frightening. I think financial planning helps folks feel more prepared to weather the volatility and uncertainty,” mentions Marguerita M. Cheng.
The Employment Situation Summary by the U.S. Bureau of Labor Statistics issued in July 2020 has reported that the total unemployment rate fell to 10.2 percent compared to 14.7 percent in April but this is still a scary number. In spite of these figures, there is still a whopping number of people who have lost their jobs or have suffered from a pay cut.
Below is the chart from the July Report by the Economic Policy Institute based on unemployment rate comparison in 1948-2020.
Top Advice to Manage Your Finances During Crisis
#1 Save More
Coronavirus has not only caused people to be scared for their health but also led to serious economic consequences that are not finished yet. Millions of people have lost their positions and don’t know how to make ends meet. Others faced pay cuts that led to less spending and more saving.
People finally realized that having an emergency fund is a necessity these days.
“One of the greatest tips for consumers is to use the savings from no traveling, eating out, etc. to build up your emergency fund. Also, formulate your budget to see if there are any adjustments you can make. Refinance your mortgage (if you have one) since rates are at their lowest level ever and this will improve your cash flow,” says Thomas W. Balcom.
The economic recession of 2008 was long gone and people thought it won’t come back so soon. However, here we are, with businesses having no consumers. If there are no consumers who spend cash, the economy is not growing. Hence, one of the most essential tips from financial experts these days is to start saving as much as you can.
Nobody can predict how long it will take to recover from this crisis, so saving funds should be your top priority.
Since the beginning of the lockdown, several industries have been at a full standstill, such as travel, service, and retail. Consumers don’t go out, they don’t travel, and they spend cash only on the essentials including rent, mortgage, car, and groceries.
So, it’s a perfect time for you to start saving funds for at least three to six months’ worth of expenditures. This is the minimum amount you may need to remain financially afloat during challenging times or in between jobs.
The second step is about investing. While saving is much safer and presents no risks for you, investing can be a great opportunity to obtain extra funds for the future. As you may already know, having a steady income source today doesn’t mean steady employment tomorrow.
- Everything might change all of a sudden, and this is the biggest lesson COVID-19 has taught us.
It pays to think about the future and opt for alternative ways to gain profit. For instance, peer-to-peer investing can be beneficial. This is when borrowers are connected with investors directly through web platforms. Of course, you face certain risks and might even lose your funds but it can be a useful method to diversify your income and search for new ways of financial well-being.
#3 Spend Less
This is obvious that we should cut our spending during the crisis. It is helpful for consumers but destructive for the economy of the country. If people stop spending cash, it leads to the contraction of the economy. As a result, businesses collapse, people are laid off, and crisis worsens.
“Knowing where your paycheck is going is critical to developing a sound financial plan and making money moves in any environment. The first step is to determine your essential expenses. How much are your essential expenses today? Generally, a good rule to follow is to keep your monthly housing expense (rent or mortgage payment) less than 28% of your gross income and keeping your total debt payments (housing, car, credit cards) less than 36% of your gross income,” mentions Joseph R. Stemmle, “Most families should set
aside enough emergency cash to cover 3-6 months of their essential expenses. Essentials include housing, utilities, groceries, medical expenses, etc.”
So, it is important to spend money as well. But you need to learn how to do it right. You should boost your >budgeting skills and know how much exactly you need to allocate to each spending category. Of course, paying for rent or mortgage, utilities, auto, and groceries are your essentials that remain stable from month to month.
But if we all want to revive and support our economy, we should take action. You can research for special offers, discounts, and bonuses from various industries. Calculate how much you can spend and choose affordable deals.
#4 Borrow Wisely
Many consumers have credit cards or mortgages to pay off. Thousands of people rely on some lending options in their daily lives.
The current pandemic is no exception. People search for suitable borrowing options to make ends meet or consolidate existing debts.
The temporary relief in the form of payment holidays is tempting to accept. Yet, you should be careful with your debt – the interest will still increase even during such “holidays” and it will be your responsibility to pay more once they are finished as your debt will still remain.
Some people suggest that they can skip payments during these months as this data won’t be reported to their credit profiles.
It is true but skipping monthly payments may affect your ability to apply for loans in the future. Creditors will want to conduct a credit pull to verify you will be able to repay the new debt while still having a previous one.
Hence, you should consider this opportunity only as your last resort. Accept payment holidays only if you really have no income at all. In case you have steady employment and receive a regular income, it’s better not to accumulate debt but rather pay it off on time.
Coronavirus-related Financial Assistance for People
Take advantage of the following relief measures during a pandemic:
- Get qualified for paid leave
The Families First Coronavirus Response Act allows people to get two weeks of paid leave. It is a great opportunity to stay safe at home when you have to telecommute to work but need to remain with your family during the lockdown. If you are under a quarantine order or need to take care of small children who are out of school or daycare, this is a wonderful chance to get paid while being at home.
- Assistance with Utility Bills
Some utility companies and service providers offer special payment plans during the pandemic. Also, you may get certain charges waived, especially if you had late payments. Housing and Urban Development’s COVID-19 resources can be helpful for those who seek extra assistance with their utility bills.
- Rent/Mortgage Relief
People who rent or have mortgage payments they struggle paying off can turn to the CARES Act and receive additional assistance. For example, consumers can benefit from a 90-day eviction ban set in New York and other cities.
- Postponing Taxes
The deadline for filing taxes can be postponed up till September as of today. This way you are allowed to conduct all the necessary paperwork until this time and have extra time to save enough money for paying your taxes. You can check the states that delayed tax filing and payments.
All in all, follow these pieces of advice and practical tips to maintain financial health and improve your monetary well-being during these challenging times.