If it appears I am writing about the coronavirus pandemic just a little too much these past few months, it’s because it is such a huge deal. Right now over 40 million people have lost their jobs here in the U.S. and the truth is that no one knows what will happen now or over the next months and possibly years. The coronavirus is not done yet despite what some people want to think.
In the U.S. alone, over two million people have now been diagnosed with COVID-19 and more than 110 thousand have died in just twelve weeks. The rapid spread of the coronavirus has caused the daily life of Americans to be fundamentally altered and that may last forever, or at least until a vaccine is discovered and that could be years away! That leaves a big question that has to answered about you, the economy and your finances: “Will the coronavirus pandemic cause you financial ruin?”
Financial Help from Uncle Sam
Giving it the “old college try”, our government put together a plan to help all of the folks who were losing their jobs, businesses that were forced to close, and everyone else and his brother too that would add trillions on to the national debt. That’s trillions and unprecedented.
That was round number one and there’s currently another round of payouts being discussed which would again help. But it would also add another trillion or three to the national debt which I am totally convinced will never be paid off.
Even with this recently passed historic financial stimulus package, the economic future of millions of Americans remains very uncertain. No one knows exactly how many jobs will come back or when it will happen. Many jobs won’t ever come back.
The truth is that a lot of people now say that it will take years before our economy looks anything like it did before the pandemic arrived. And that means you will suffer financially one way or another.
Congressional Budget Office (CBO) Projections
It could take the U.S. economy nearly ten years to recover from fallout stemming from the coronavirus pandemic as well as lockdowns to curb the spread of disease, the Congressional Budget Office said on June 1st.
The CBO now projects that over the 2020-2030 period, cumulative nominal output will be $15.7 trillion less than it previously said in January, a 5.3% cut. It dropped its real GDP forecast for the same period by $7.9 trillion, or 3%, according to the report. U.S. GDP isn’t expected to recover to the CBO’s previously forecast level until the fourth quarter of 2029, the report showed. Those are scary numbers.
Spending Money Like Everything’s Normal???
This situation at hand is not normal and we don’t know when normalcy will return again. So right now we need to focus on conserving our cash to help cover essential expenses. So put this rule into effect right now: “Cut your spending way back”.
This is especially important for those who have lost their sources of income due to COVID-19, and those who are at risk of losing their incomes at some point.
If you never had a budget before, now is the time to make one. If you already have one, then review your current budget and look for areas to cut back on spending. You may want to take measures like canceling certain subscription services you don’t use often, or turning your thermostat up or down to lower your energy costs.
You are sticking closer to home now and avoiding risky behaviors so that spending reductions should be fairly obvious and easy to find. Do whatever you can to conserve your cash, and place that extra money into an emergency fund that you can rely upon in the weeks and months ahead until things seem to be more normal.
Do You Have Enough for an Emergency on Top of This Emergency?
Here’s a simple stress test to see if you have enough socked away for that proverbial rainy day, which, in this case, could be a monsoon. Look over your credit card and bank statements to see how much you typically spend in a month on necessary stuff (housing, food, insurance). Then divide the amount in your savings account by your monthly necessary spending. Is the resulting figure less than three? If it’s not, you have a problem, you’re probably underfunded.
Cutting back on some things helps, but you can also look for new ways to earn some extra money. Even a few extra dollars can add up pretty quickly. What hidden skill do you have that be turned into an income producer?
Credit Card Debt
During normal times, I suggest paying down your credit card debt as quickly as possible. But with income losses or the threat of income losses, you may need to conserve your cash. Pay only the minimums on your credit card debt temporarily and sock away the rest into savings. When you’re back on solid footing, you can get back to attacking that debt more aggressively. That way the next time there’s an emergency, you’ll have credit available in case you need it.
A Few More Tips
Take time right now to find new ways to educate yourself and adapt to a “new” work world. Update your computer skills for one and improve any licensing you may need to upgrade a position at work through online courses. Do anything to elevate yourself from the many that will be competing with you.
Refinance your mortgage? Yes, now is a great time to do it and save money. Take the savings and add it to your emergency fund or better yet your retirement fund which may be suffering due to a lack of work.
You are not alone in taking on this endeavor. Millions of Americans will continue to face tough times over the coming months, and there isn’t much that most people can do about that, until a vaccine is here and people can go back to normalcy. That may be a year or more away from now and by that time hundreds of thousands more may be carrying the disease.
Advice from the Pros on How to Handle Your Money Right Now
Financial advisers and experts, with the help of tweets, charts, and screens, have reminded anyone and all who’ll listen to avoid checking your 401(k) as the S&P 500 turns into a falling knife. You should avoid changing your investing plan simply because stocks are down sharply. That is good advice. It’s nearly impossible to correctly time buying and selling stocks and studies show that those who try it typically end up making far less in the long run and possibly even losing money.
But even if you turn off CNBC and resist the temptation to check your investment account balance, market downturns get harder to ignore when they look like they’ll be followed by recession, high unemployment, and stress on your personal bottom line.
The most vulnerable—often believed to be young people about to graduate and launch their careers and older people on the verge of retirement—may not be limited to who you think they are. A recent paper from the Center for Retirement Research at Boston College found that the youngest boomers (those currently between the ages of 55 and 60) have much less saved in their 401(k)s and IRAs than older boomers in large part because many lost their jobs during the 2008 financial crisis and were only able to find lower-paying work when they re-entered the workforce. That is, in their forties, as the youngest boomers were moving into what was supposed to be their peak-earning years, they lost momentum and weren’t able to recover, even though a historic economic expansion and stock market boom followed the Great Recession.
There’s trouble right here, and not just in River City. In other words, almost everyone, unfortunately, has something to worry about in the current economy. I know you are hearing things like “the economy will be rockin’ in July” and “even better than before coronavirus” stuff and maybe that is right, but maybe not. You must take the actions and precautions yourself because it could be a very long summer.
What is your strategy to get through this economic crisis? How can you avoid financial ruin?