Ina Fernandez CPA, President & CEO, Fern Capital Inc.
We’re hearing the phrase “we are all in this together” everywhere in the media during the Covid-19 crisis. It’s true from both a health and a financial perspective this time. So, here are some suggestions for people in different financial situations caused by the Covid-19 crisis.
Out of work and running out of emergency funds
If you fall into this category, you are likely the intended target of various congressional bills passed and in the process of passing these days. Control what you can, as your family comes first in this scenario. So, ask for forbearance from your landlord or mortgage company, utility and phone companies, credit card processor, or internet service provider, for example. Many of these companies understand that this crisis is not of your making or may be required by law to provide you with a grace period of non-payment until the crisis is over. Meanwhile, make a clear list of your needs and wants and focus on spending your limited financial resources only on needs. Recognize that this is difficult to do, but some sacrifice on your part is reasonable if you are asking others to be patient.
If your need is dire, there are community food-distribution services available, and you can locate one near you at https://www.gcfb.org/fighting-hunger/get-help/. You can also call 211 for emergency food assistance.
On the income side, you need to keep current on what financial assistance is available to you from the federal (look up https://www.irs.gov/coronavirus/economic-impact-payments), state, and local governments that are geared to help during the crisis. Get in line for this help as soon as you can, as it is often a first-come, first-served situation, and funds could be depleted before it gets to be your turn. Depending on your health and personal situation, there are still job openings at drug stores, supermarkets, online marketers (Amazon comes to mind), and technology services that enable people to work from home.
Hanging on by a thread
If you are still employed but afraid you will be let go at any moment or are an independent contractor with a reduced workload, get an early start on conserving your cash and building up your rainy-day fund. As recommended above, reduce spending on non-essentials, and start negotiating with your lenders and service providers to extend payment terms now, before you absolutely need it. Look to establish an equity line of credit on your home at this time as well.
If you have a retirement plan, you can now borrow up to the lesser of $100,000 or 50% of your vested balance. Keep in mind that if you lose your job, this loan will be considered a withdrawal subject to income taxes. As much as this hurts me as an investment advisor to say, a last resort would be an outright withdrawal from your retirement plan (if it allows for hardship withdrawals) or your IRA. If you are under 59 ½ and the need arises as a result of the pandemic, the 10% penalty is waived for up to $100,000 in withdrawals. You can pay the income taxes over three years. As you will be selling at market lows, this is not a good idea unless you have exhausted other options. If you do this, plan to replenish the amount as quickly as you can.
Depending on your skills, look to expand into areas that are in demand in an environment of social distancing, like tutoring, assistance with virtual technology, etc. Let you imagination run. A crisis can spur you into new and exciting paths that could sustain you beyond the present.
Still financially comfortable, but worried
Use this crisis to evaluate your finances. Make sure your emergency funds cover at least 6 months of your expenses and the possibility that you may have unusually high health-care expenses or loss of income if you or a family member should fall ill. Pay off high-interest debt and review your annual budget to trim expenses wherever you can.
Finally, remember to help others who are not as fortunate as you are by giving a bit more to your favorite charities, or volunteering if you are able. Nonprofits are facing increased demand for their services with fewer resources to tap throughout the crisis, as their regular donors could be strapped as well.
To quote Thurgood Marshall, “The measure of a country’s greatness is its ability to retain compassion in time of crisis”. Amen.