In a financial crisis? If your livelihood is being affected by the COVID-19 pandemic, you’re not alone. With many public-facing businesses and organizations closing or going virtual for now, the uncertainty of it all probably has you feeling fear. But making money decisions from a place of panic rarely turns out well in the long run.
Here’s what to do and what to avoid if you’re in financial crisis.
Assess the situation.
Get a clear picture of what’s actually going on with your personal finances. What is your income, expenses, assets, and debts? Until you know exactly what you’re dealing with, you can’t make constructive decisions. Does your cut in income mean you’re going to be $300 short of covering your essentials each month? Or $3,000 short? Assessing the situation and seeing it in black and white will allow you to make a plan of action.
Pay minimums on your debts.
If your income has been cut, or there’s the possibility of it, just pay the minimum due for now. One of my banks just announced a Coronavirus Hardship Relief Program. This includes eligible customers being able to defer payments on auto loans, credit cards, and mortgages for 90 days without late fees or negative reporting to credit bureaus. If you’ve been laid off or your business income has significantly dropped, contact your financial institutions to see if you qualify for a similar program.
See if you qualify for assistance.
Don’t be ashamed to file for unemployment, subsidies for your small business, or other forms of assistance if you need them! Local, state, and federal agencies, along with churches and non-profits, are rolling out new programs daily. If you’re a business owner, check in with your local Chamber of Commerce for guidance. I belong to the Northern Kentucky Chamber of Commerce and its president, Brent Cooper, is sending out daily emails keeping us members apprised of all the changes happening and the assistance available to us.
Cut unnecessary spending.
Most of us have areas of our spending that can be trimmed back without much pain. Go back to my first point and assess how you were spending money before this happened. Are there large purchases you can postpone? Can you suspend payments on gym memberships, kid’s sports, and other services you might not even be using until you’re back on your feet financially? And don’t fall prey to mindless online shopping because of boredom or stress!
Do NOT take out early withdrawals from your retirement funds.
I know this might be tempting since Congress is waiving early withdrawal penalties. But you’ll be punished with taxes and selling in a down market.
Anthony R. Ruffalo, CFP® with LPL Financial says, “One of the worst financial mistakes someone can make at this very moment is an early withdrawal from a qualified retirement plan. I would beg, borrow, and steal before liquidating a retirement account under current conditions. The biggest penalty of all will be the loss of potential growth compounded over the next 20-30 years. The consequences are devastating and often under estimated.”
So, please hold tight! The stock market WILL go back up eventually. If you’re really worried, please contact your financial advisor for guidance.
Don’t stop paying your insurance policies!
It can be tempting to cancel life insurance or other policies, thinking you’ll pick them back up later. But what if disaster strikes and the coverage you desperately need is gone? Even if cash is tight, I don’t recommend exposing yourself to tens or hundreds of thousands of dollars of risk just to save a few bucks in the short-term. If your premiums are simply not affordable, contact your insurance agent to see if you can temporarily decrease (not cancel) your coverage to get you through the crisis.
Don’t act out of panic during a financial crisis.
Financial knee-jerk decisions rarely end well. Take a deep breath. Ask yourself, “One year or five years from now, will I be happy I made this move with my money?” Once the crisis passes – which it WILL – use this experience as motivation to disaster-proof your finances for the future.