This has been a year of continuous uncertainty and upheaval. The novel coronavirus and the resulting lockdown have driven the economy into a recession from which we are only slowly beginning to emerge. Many of us are adapting to unexpected challenges such as pay cuts, furloughs, home schooling, and/or remote work. These stressors can take a toll on our daily lives and impact our finances.
Some of us, however, have found that our expenses have decreased during quarantine. “You may have saved money on dry cleaning, dining out, entertainment, or transportation. One couple I work with is saving $500 each month because they are no longer attending Broadway shows, which was their favorite pastime,” says Felicia Garland, a certified financial planner with Krietzberg Wealth Management and registered representative of Lincoln Financial Advisors Corp.
Even if you are spending less than you did last year, your financial situation may still be keeping you up at night. “Folks are feeling financially unstable right now and we’re seeing a lot of fear. Individuals are coming to us and saying, ‘I was going to retire in five years, now I may lose my job next week,’” says a NJ-based Morgan Stanley financial advisor. He points out that about 80% of Americans do not have a plan in place to guide their finances.
These tips can help you to devise a strategy for managing your finances during these difficult times.
Assess your cash flow
Review your banking, credit card, and investment records to understand how much money you are making and spending. “Understanding where and how you spend your money, so that future spending can be a conscious choice, is the first step to taking control of your finances,” Garland says.
Cut expenses
When you take the time to track your expenses, you may be surprised how easy it is to cut 5% of your spending, says the Morgan Stanley advisor. This can be as simple as brewing coffee at home each day, rather than buying an expensive latte from a coffee shop. Garland adds, “Use the pandemic as an opportunity to understand what your true necessities are and what are extras. Adjust your spending accordingly.”
Contact your creditors
“Many creditors are willing to let you delay payments or make smaller payments during these times,” says Leonard Steinberg, director of Steinberg Enterprises and an Enrolled Agent (licensed to represent taxpayers before the Internal Revenue Service [IRS]). “Contact your credit card companies to negotiate minimum payments and interest charges. And, always make at least the minimum monthly payment; otherwise, it will affect your credit rating.”
Surround yourself with professionals
You would surely hire a trained surgeon to perform brain surgery. Likewise, it is important to find knowledgeable financial professionals to manage your finances. Retain the services of a certified public accountant (CPA), a certified financial planner, and an insurance agent. These professionals can provide a dispassionate view and help you understand and manage your finances in this uncertain environment.
Create a plan
Few people like to develop, let alone live within, a budget, Garland notes. Determine your financial goals and then work with your CPA and financial advisor to set budgets and investment strategies. During good and bad times, a solid financial plan is key.
Leverage your resources
Now may be the time for you to sell real estate assets or get a home equity line of credit. These continue to be good options if, for example, you need to finance your children’s college educations. Steinberg cautions, “Use reverse mortgages, 401(k) loans, or credit card cash advances as a last resort; they can be more costly in the long run.”
Use an app
Many apps are available to help with daily budgeting, banking, and investing tasks. A basic online search can help you to find and evaluate the best budgeting apps to suit your needs. Many top-rated apps are easy to use and offer free signup or trials.
Avoid scams
Protect your assets and personal information to ensure the security of your finances. “We’re seeing more cryptocurrency scams during this pandemic, so be wary of any ‘get rich quick’ emails you get. Likewise, don’t fall for any email that says you owe money to the IRS. The IRS will never contact you by email,” says Steinberg.
Get a side gig
Consider diversifying your income as a freelancer or with part-time work. For instance, one professional became an SAT tutor after taking the necessary training. Tutoring students a few nights a week helped to improve her cash flow and enabled her to pay down a credit card.
Develop a savings mindset
“Nobody wants to put money aside in a rainy-day fund. It’s no fun, especially when you could have used it for a trip or hobby. COVID is the emergency we never could have predicted, but what a lesson in the need to save money,” notes Garland.
This article originally appeared in the "Career Connection" column in the October 2020 issue of CEP. View the original CEP article here. Members have access online to complete issues, including a vast, searchable archive of back-issues found at www.aiche.org/cep.