Let the COVID-19 pandemic, commonly known as the coronavirus, serve as a lesson -- a difficult but important one. After hunkering down at home during this pandemic, COVID-19 has taken more than just a physical toll on the country and each one of us individually; it may have taken a financial toll as well. Let’s look at tools to help recover financially after the coronavirus.
Nearly 3 in 10 Americans don’t
have emergency savings.
Since it’s been more than a decade since our nation’s last recession, many people in the workforce are too young to remember its effects, while others may have forgotten about it.
During the pandemic, many states closed certain businesses which resulted in countless Americans going without a paycheck because they couldn’t go to work for an extended period of time.
Not everyone is financially equipped to miss a single paycheck, and several months without income is even a greater struggle. As such, many people have already learned some tough financial lessons. Even if you were fortunate enough to work from home and retain your income as the country locked down, this crisis served as a lesson to always be financially prepared.
How to Prepare for a Financial Setback: Emergency Savings Fund
Emergency savings could be a lifeline to minimizing the effect of income disruptions, unexpected expenses, or other financial obstacles. Having an emergency savings fund gives you peace of mind and buys time to figure out a longer-term solution. Most financial analysts suggest having three to six months of living expenses stored away in a savings account at all times. This is not a random amount, and it's designed to cover unplanned bills like home or auto repairs, and also to get you through a stretch of unemployment. For many Americans thinking about having three to six months in savings seems like an impossibility; the good news getting started with any amount will help.
Even if you don’t have an emergency savings fund yet, BankRatei reports that nearly 3 in 10 Americans don’t have emergency savings. These three tips might help you prepare for or recover from an unexpected expense.
- Assess Your Budget – Start by taking a fresh look at your monthly income and expenses. Total your monthly take-home income to find out what you have to spend. Next, categorize your expenses into essential (bills you have to pay, like housing, food, utilities, medicine, and debt) and non-essential (things you could go without, such as entertainment, dining out, subscriptions, and more). Subtract your total expenses from your take-home income to find out how much you have to start building your emergency fund! Write it all down.
- Cut Back on Monthly Expenses - Take a close look at your non-essential expenses and determine what you could live without temporarily to free up extra money for your emergency fund. Canceling subscriptions, reducing your cable bill, or delaying a non-essential purchase until you reach your savings goal can help you save faster. Also, examine your essential spending to find places for additional savings. You may discover that you can shave dollars off your grocery bills, energy costs, and transportation costs (among others) to redirect to your emergency fund. You can also save money on debt. Paying just the minimum amount on your credit card bill is more expensive overall because you end up paying more in interest and fees. Depending on your situation, you may opt to temporarily divert money to your emergency fund and pay less toward debt, or it may make more sense to first get out of debt as quickly as possible and then apply that amount to your emergency fund.
- Prioritize Savings, when possible – Once you’ve discovered ways to free up money in your monthly budget, total up those new-found dollars and write them into your budget as monthly deposits to your emergency fund. You may even want to open a separate account to help build your savings without drawing on it. You might find it easier to save by using automated transfers or direct deposit to your savings account to help you with your new monthly savings goal.
Of course, it's challenging to build emergency savings in the middle of a crisis. If you were laid off from work, you may not be in a position to start saving money, but you may be eligible for unemployment benefits through the state you work in and you can ask creditors for temporary relief from current bills. If you have been laid off or find that after doing the budget exercise, you cannot find any savings, there are still things that you may be able to do to financially recover from the coronavirus.
There are five things you can try to help through this crisis:
- Delay Major Expenses - this seems obvious, but until you are sure of your financial future, it’s best to postpone purchases like cars, houses, expensive vacations, and other large purchases.
- Contact Your Creditors – If you are not able to pay your bills on time, contact each of your creditors to let them know your situation. Missing payments can harm your credit score. By contacting your creditors, they may be able to work with you to defer a payment or set up a new payment plan. You never know if you never ask.
- Create New Income – This could be a traditional part-time job or an entrepreneurial side job. Today, there are many online jobs that allow you to choose your hours, like any ride-sharing services or shopping and delivery services.
- Think About Refinancing Your Loans – As a response to the coronavirus, the Federal Reserve has lowered the interest rate to 0%. When the interest rate goes down, it's an excellent time to consider refinancing your debt to a lower interest rate to save you money.
- Formulate a Contingency Plan – While it may be difficult to consider, you may need to contemplate selling assets such as a boat or even an extra car or jewelry. Downsizing to a less expensive home is another good option to consider if you are still struggling to make ends meet.
No matter how the coronavirus may have affected you, it’s always good to review your financial situation and think about how you can make it stronger. Since money is (usually) our number one source of stress, it’s just smart self-care in stressful times.
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