It’s been five months since the first COVID-19 infections were reported in the United States and it seems like years. Stay-at-home orders may have been lifted in many areas, but life is not normal in any part of the country.
Being so much more isolated these days, it can feel good to know that you’re not going through this alone. You’re not the only with financial questions or money challenges right now and there are some solutions out there that can help get you through what is going on.
Getting back on track for your future is something you have to think about. There will be a future even if right now it’s not easy to see it.
So is it ridiculous now to try generating or freeing up more cash and finding financial safety, or even setting yourself up to create and grow wealth in the middle of a plague? What are you doing to cure your money worries right now?
What’s Your Income Status During the Pandemic?
Most people, about 45% of the population, are seeing less work and revenue right now and that isn’t surprising to anyone. Some Americans, about 30%, have seen no change in their incomes and incredibly, about 10% are actually busier and even generating more income and revenue than even before COVID-19.
But then there are the saddest cases, about 15% among us who have been laid off and/or lost their business entirely.
The facts, no matter where you stand at the moment, do not change a thing about what you worry about now when it comes to your money. Everyone is faced with some kind of future and must recover from “now” to prepare for it starting today.
5 Money Challenges
Here’s my take on your biggest financial challenges now and how you can get back on track to a solid financial future! Here are five money challenges and possible solutions.
1. How can you recover from the loss of income and damaged credit?
A lapse in employment can leave your credit in shambles. You can do all you can to preserve your credit score, but during a long period of unemployment, you may have to make some difficult spending decisions that result in credit damage. That may be all you have to turn to now, but once you’re back on the clock bringing in steady pay, you have to begin rebuilding your credit, credit score, and emergency cash funds.
With a loss of income, you’ve likely used and abused your credit cards to make ends meet. Your credit card dependency may be necessary for an emergency, but it’s a necessary step to break that dependency ASAP in order to rebuild your finances. Tricks like freezing your credit card or a sticky note warning you not to swipe can help you think twice about making more credit card purchases than you really need to use.
2. If you own a home, should you re-finance or sell it now?
Your home may be your biggest single asset and hopefully you have cash equity in it and it’s growing. Selling your home to pay debts and cut expenses during a pandemic is a last resort and a very desperate move, so it shouldn’t be at the top of your priority list.
But right now, mortgage refinancing rates are at record lows and offer you great opportunities to accomplish several financial goals.
Refinancing can be a great financial move if it reduces your mortgage payment, shortens the term of your loan, and/or helps you build equity more quickly. When used carefully, it can also be a valuable tool for bringing debt under control. Before you refinance, take a careful look at your financial situation and ask yourself: How long do I plan to continue living in the house? How much money will I save by refinancing?
Keep in mind that refinancing costs 2% to 5% of the loan’s principal. It takes years to recoup that cost with the savings generated by a lower interest rate or a shorter term. So if you are not planning to stay in the home for more than a few years, the cost of refinancing may negate any of the potential savings. It also pays to remember that a savvy homeowner is always looking for ways to reduce debt, build equity, save money, and eliminate their mortgage payment. Taking cash out of your equity when you refinance does not help to achieve any of those goals.
3. How do you invest wisely and plan for retirement with something safe that works? And how do you know when and where to invest?
The first question to ask yourself is really “What should you do about your 401(k)/IRA investment in the stock market?” Your retirement and future depend on that and if you are one who lets everything just stay on auto-pilot when it comes to these topics, now is a good time to pay closer attention.
If you have a retirement account, and nearly half of all workers do not, be happy you do. If not, this is a good time to get going and plan one.
Second, know that in the last recession, workers who did not lose their jobs and did not have to withdraw from their retirement accounts to pay basic bills were back to where they had been fairly quickly despite the recession. Investment markets historically always rebound and typically reflect long term optimism rather that what is actually happening today.
Stay the course. If you’re considering pulling money out of your retirement funds, know that this is the absolute worst time to do so. Buying high and selling low is a big mistake investors make. Even when it looks bad, it will look worse if you sell now and invest back in when the market is up and ahead again which it eventually will be. Retirement funds may be tempting, but you will regret if you touch them even during a pandemic.
4. Will things actually get worse than they are now?
It’s going to get worse before it gets better. But as the COVID-19 pandemic extends into the back half of 2020, it feels like it just won’t ever get better. But it will.
Crises in housing, education, employment, health, and personal finances existed before the pandemic, but have accelerated because of it. So, what can you do? How can you make things better?
Assess what kind of material support you need for yourself and your family. Is it food because you can’t afford groceries? Can you find and get the help from a food bank locally or a state agency?
Is it your rent or mortgage payment that is your problem? No matter what the most basic needs there are, communities and individuals can and will help. Talk to your lender or landlord and see what can be done.
Maybe your problems aren’t as bad as your neighbors? You can help even when you think you can’t. The main issue is to look at your problems in a calm, rational way.
Living smarter isn’t a disaster and eventually, even if you need help now, you can bounce back when job, health, and normalcy returns. It will help to think that way.
5. Can you find ways to increase your income or start new income streams even during a pandemic?
Congratulations for just considering that you can do either of these two smart things. You haven’t stopped trying and you are still in the game to win, COVID-19 or not.
When first starting and planning a new income stream or business, most people focus on creating a product, building a website, planning a marketing campaign, and even setting up an online or an actual retail store. They have this great idea for a product. It’s a sure winner. So they develop a whole business around that product which they hope will produce a profitable income.
It sounds like a great plan to develop a thriving business. But there is a big important first step missing and that is figuring out if there’s a market for that product or service. Are there actual customers out there who want to buy what you are selling? That’s the first thing you must determine if you are looking to increase your income or start/expand a new business.
Rather than coming up with a great idea that nobody has come up with yet and hoping there is a market for it, instead find out what people are already buying and create a service or product that fills that existing need. That way you already know it’s a winner.
The truth is in most cases, if something isn’t being done already, it’s not because nobody has thought of it before, but rather people have already tried it and it’s failed because there is no market for it.
It’s been a rough five months behind us and it may be another rough period ahead. That’s why you must have a plan and the first step in making a plan is to ask yourself the tough questions. When you do that, you can begin to find the best answers for you.
While they answers vary for each person, essentially we all have to plan for our future and that means being prepared for anything including a health crisis or joblessness or economic recession. Even if you never thought about it before, you can see it now and only a few people were actually prepared for it. Most of us weren’t.
Are you ready to tackle these money challenges? What will you do to be prepared for your future after COVID-19?