The current COVID-19 financial landscape is unpredictable, causing anxiety for people of all ages. With layoffs, unexpected medical expenses, and an ever-changing and uncertain economy, it’s easy to worry.
“Now more than ever is the time to take an active approach with your finances to position yourself for success,” says Danielle Seurkamp, CFP. “Knowledge is power during unpredictable times.”
Andy Mardock, CFP, agrees. “Emotions are running high with coronavirus concerns. Being informed helps you resist gut reactions driven by emotion so you don’t make a move you later regret.”
Both Seurkamp and Mardock are members of the National Association of Personal Financial Advisors (NAPFA), an association of fee-only financial advisors who adhere to a fiduciary standard. Together they offer important financial tips to empower you to make wise financial decisions today and in the future:
Budget and be proactive
Create a budget and identify which bills are locked-in and which are discretionary. Then decide what can and can’t be cut. For those who have lost significant income, contact providers as soon as possible to explore options.
“Many companies are waiving late fees, establishing payment plans or deferring payments,” says Mardock. Foreclosures and evictions have been suspended in many cases. Contact your financial institution for relief on mortgages and other loans in the form of payment deferrals or forbearance to ease the pressure. For business owners, review the rules of CARES Act loans as well as the requirements for loan forgiveness to ensure you’re taking care of both your employees and your company.
Manage medical costs
Medical costs including over-the-counter drugs and menstrual care items are now considered a deductible medical expense. Seurkamp says you should consider using money in your flexible spending account on these items to reduce the burden on your monthly income. COBRA insurance premiums can also be paid using money in an HSA.
Get your stimulus check
“If you haven’t filed a tax return for 2018 or 2019, file one as soon as possible to qualify for a stimulus check provided by the federal government as part of the CARES Act,” says Seurkamp. “If your 2019 income was lower than 2018 or you added a child to your family last year, file your 2019 return now to potentially qualify for a higher stimulus check.”
Access emergency funds
If needed, use emergency cash or sell bonds to fund your living expenses. Now is also a good time to use low-interest debt like a home equity line of credit for cash needs if necessary.
“Try to avoid selling stock to create cash right now since values are down,” advises Mardock.
Use retirement savings cautiously
The CARES Act stimulus package makes it easier to dip into retirement savings to fund short-term living expenses. The 10% penalty on early IRA distributions has been suspended for up to $100,000 of COVID-related withdrawals. The amount that can be borrowed from a 401(k) has been doubled from $50,000 to $100,000 and the repayment terms have been relaxed.
“You can use these resources to cover essential expenses but resist the urge to use retirement savings for discretionary spending,” says Seurkamp. “Remember, you will either have to pay back what you borrowed or eventually pay tax on the withdrawals. Furthermore, to create cash in a 401(k) to withdraw, you will almost inevitably have to sell stocks when values are depressed, locking in losses.”
Limit media time
It’s important to be informed, but easy to become fatigued by watching negative financial news over and over. Once you’re informed, turn off the financial news, suggests Mardock. It will always be there when you come back. Moments to recharge and refocus are a necessary component of making smart financial decisions.
Consider virtual guidance
“If you’re feeling overwhelmed or have questions, set up a virtual meeting with a financial advisor,” says Seurkamp. “There are a variety of fee models for financial planning, including hourly, project-based and subscription offerings.” Most advisory fees are based on the complexity of the client’s financial situation, which alleviates issues around affordability.
In addition, as part of the group’s community response, some members of NAPFA are offering pro-bono assistance to those whose incomes are in jeopardy. This includes access to basic information about unemployment, tax waivers, lender moratoriums and more.
Even one hour with a financial advisor can help bring you peace of mind and some tangible next steps.
Visit www.napfa.org for more consumer tips and resources.