The headlines have been pretty scary lately. COVID-19, aka the coronavirus, has people around the planet worried about our health, both literally and financially. The World Health Organization says that the vast majority of COVID-19 cases are mild, but that doesn’t mean it might not have an impact on your money.
One way it might affect you is around the disease itself. If you need to self-quarantine, if you get sick, or if you have kids whose schools close, you’ll probably be at home for around two weeks. That could mean a financial hit — especially if you don’t have paid time off at work. It’s really not clear yet whether short-term disability insurance or the Family and Medical Leave Act would cover that lost income. On the other hand, if your income’s not affected, you’ll likely be spending less during this time, which can help you save up.
Another way you will see its impact is the virus’ effect on the economy overall. Fewer people traveling or going to stores and restaurants are having an impact. So are disruptions to the supply chain — when people are sick, they can’t work, and things can’t get made, and that has a ripple effect. We don’t know when that uncertainty will end, and so the stock markets have been very volatile — and the market is telling us that the risk of a recession has significantly increased. The pre-coronavirus US economy was pretty healthy, so we could see a quick recovery (recoveries from previous viruses have been pretty rapid) … but there’s no guarantee of that. At this stage, nobody really knows.
In the face of financial uncertainty, it can feel good to take some concrete action. Here’s what we recommend you consider.
Money moves you can make right now
A lot of us are staying in more — be it not going out to restaurants and events, cancelling travel, working from home, dealing with school closures, or needing to self-quarantine. If there’s an upside of being at home, it could be some extra time to spend on your money.
1. If you don’t have emergency savings
This type of moment is why an emergency fund — easy-to-access savings of three to six months’ of your take-home pay — is so valuable. But lots of us aren’t there yet, so now’s the time to make a plan.
If your income takes a hit because of the virus, you’ll need to cut back on non-critical spending until you can get fully back to work. Then think about keeping those cuts in place for a while to help you start building your emergency savings up. You might also want to cut back on any extra payments beyond the minimums to debts that have interest rates of less than 10%, so that you can set those dollars aside for emergencies if you need to.
Meanwhile, it might be time to take a look at your options for debt that can help you if you need it. Some things to look into:
Credit limits vs current balances: You’ll want to know how much credit you have available just in case you really, absolutely have to dip into it during this period. This could be credit cards, but it could also be home equity lines of credit or other types of debt — personal loans, reverse mortgages, etc. Your current balances will use some of your credit limit up, so you need to know not just your limits, but how much of those limits you have left. Log into or call the provider of each of your debt accounts to see what their options are and if you can use any credit.
Interest rates: If you do end up needing to dip into the credit you have available, you should start by using the source with the lowest interest rate, to help minimize the interest you will have to pay back later. After you make that list of debt options, prioritize using them in order of lowest interest first.
Special offers: Now’s the time to look into low-interest introductory rate offers you may have gotten recently. If you have the chance to get a line of credit with a 0% interest rate on purchases for the next 12 months, that could be your first option for financing any income loss or extra expenses if you don’t have the cash on hand. Also, check to see if any of your existing credit cards are offering low interest rates on balance transfers — if they are, you could charge necessary purchases on a different card, and then transfer the balance to get a lower rate.
2. If you do have emergency savings
Even if you do have cash saved up, it’s a good time to review your spending. For one thing, crises make you think about what really matters to you — and that’s the key to spending more mindfully. For another, you might want to pull back in spots now to make more room for the future.
Take a look at your recent bank and credit card statements and look for anything you’re paying for each month that you don’t truly need … or possibly even know about. (It happens.) Then look at what you want, and what you might press pause on. If you won’t be at the office for a while, you can stop an office clothes subscription for now, for example.
Also think about how your spending patterns might change in the near future. Some expenses might go up — things like delivery services or transportation costs (if you’re avoiding public transportation). Others will probably go down for a little while — things like entertainment, or travel, or possibly child care, depending on your arrangements.
Don’t overspend on stockpiling goods. Follow the CDC’s recommendations for getting ready, and think about what you’d want to have on hand for a couple of weeks while you’re sick (like herbal tea, Kleenex, cough drops, cleaning supplies). Buy those things instead of cleaning out Costco.
3. Think about refinancing your loans
As a response to the coronavirus uncertainty, the Federal Reserve lowered interest rates to 0%. When interest rates go down, it’s a great opportunity to consider refinancing your debt at a lower interest rate, to save you money. If you own a home, you can look into refinancing your mortgage. Traditional wisdom says to refinance when rates are 1 – 2% below what you’re paying now, but it’s worth looking into even for less, if you can find a place that will refinance with very low closing costs. Some lenders let borrowers do a “streamline refi” with little to no closing costs, just to keep the business.
You can also check on refinancing your private (not federal) student loan debt, or any personal loans. If you already have credit card debt, now might be the time to look into consolidating it with a personal loan, especially if the rate would be lower than what you are paying on your card balances. If you take out a loan and don’t need to use your credit cards for any emergencies, it’s better to avoid using them at all. If you can help it, you don’t want to build those balances right back up again after you pay them off.
(Just a note: Interest rates going down mean you’ll earn even less interest in your savings accounts in the bank. Read more about saving vs investing here.)
4. Consider picking up a side hustle
Any gig that involves close contact with people may be at risk right now, and if you’re an Airbnber, you may be looking at cancellations. But you might want to look into things like transcribing, proofreading, user testing or focus groups, at-home selling, or becoming a virtual assistant.
5. Update your resume and tend to your network
This is a smart use of downtime at home. We tend to only think of updating this stuff when it’s time to start looking for a new job. But it should really always be up to date, particularly on LinkedIn, so people can know what you’re up to.
Reaching out and checking in with people (aka networking) has two upsides right now. One, you’re actively connecting with people and keeping your paths of opportunity open — which will be more important than ever if the job market flattens out. And two, you’re actively connecting with people. Kind of important in times of stress.
6. Think about education
If you’ve been thinking of going back to school, now could be the time to start planning. If the economy gets worse, it can be a time to invest in yourself, because the cost (of lost earnings plus tuition) can be lower than the boost you might be giving to your future earnings. A few things to keep in mind, though. Student loan debt disproportionately affects women. And during the Great Recession, the wave of people returning to school overburdened the system and resulted in more debt than ever. If it’s possible, try to avoid taking out private student loans and stick to federal loans.
7. Don’t keep checking your investment balances
Investing consistently, a little bit from each paycheck, is nearly always what we recommend at Ellevest — instead of trying to guess when to “buy low” and “sell high.” Emotions make for terrible investment decisions.
You’ll see your balance be lower when markets go down. That doesn’t feel good at all, I know. It’s very tempting to take your money out of your investments during the down times. But trying to avoid bad days can mean missing the good days.
Investing over time — a little bit during the good days, a little big during the bad days — means that you’ll be buying when prices are low and when prices are high, and you’ll pay an average price over time. Chief Investment Officer Sylvia Kwan wrote about that recently.
Also, your deposits can buy more when markets are down. That’s what people mean when they say you’re buying stocks “on sale.” One example: If you had invested in the stock market in the 20 years between 1999 and 2018 and not touched it, your money would have tripled. But if you had traded in and out and had missed out on just the ten best stock market days over that same time, your returns would have only been half of that.
No matter what impact this virus might have, it’s always good to review your money situation and think about making it stronger. Since money is (usually) our #1 source of stress, that’s just smart self-care in stressful times. And when you’re done: Stay calm, and wash your hands.
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