COVID-19 reached American soil months ago and, for many people, mental and physical fatigue is palpable. Sheltering in place has gotten very “old” and weeks with a reduced (or no) income has thrown the finances of millions of households into a tailspin. Studies show that prolonged “paycheck to paycheck” living can sap mental bandwidth and stress mental health to the point that people are simply not fully functioning.
What can people do? The only thing that they can do. Create some semblance of a routine and focus on things that they can control. In this podcast episode, Dr. O’Neill and I discuss ways that personal financial managers and other helping professionals can help military families navigate change, loss, and uncertainty in this turbulent time.
Marshall resources. Look for sources of monetary support and human services in your community, if needed. Examples include food pantries, job training programs, and utility assistance. For information about local resources, call 211 or visit www.211.org or reach out to local human services agencies.
Yes, indeed. Budgeting is more critical now than ever. Make your best estimate of current income and expenses and consider various ways to close the gap. For example, money saved by getting free food at a food pantry or by spending less on child care, gas, meals are eaten out, and travel preserves income for rent or utility payments.
Start with discretionary spending. Avoid spending that increases household debt and non-emergency savings (e.g., TSP retirement plan) until finances stabilize. Other ways to spend less are eliminating auto-payments for non-essential items (e.g., gym memberships when gyms are closed) and switching to cash for most purchases.
Make three lists of expenses: Needs that are necessary for survival (e.g., rent, utilities, food, medication copays, transportation, phone, internet, and health insurance), Obligations (e.g., debts such as credit cards and student loans, child support, taxes, and dues), and Wants (expenses that are not required for survival or you have no obligation to pay). Next, starting with needs, put expenses in priority order and pay bills until the money runs out.
One way is to consider the consequences of non-payment for each expense. What is the worst thing that could happen if an expense is not covered? With this “lens,” food is always the highest priority need. We need food to survive. However, food may be available from food pantries, which can free up cash for other basic needs.
Again, consider the consequences of delayed payment. With this in mind, debt experts often suggest the following payment hierarchy: court fines and fees, child support, auto insurance, money judgments, secured debt, taxes, and tax debt (contact the IRS for a payment plan if you are in arrears), student loans, unsecured debt, property/liability/life insurance, retirement plan savings, and interpersonal debt and social obligations.
Contact your creditors before you are late with a payment and discuss options for leniency and a payment plan. Confirm all agreements with creditors in writing with a follow-up letter or e-mail. On-time payment is a key factor in credit scoring so make sure your credit history is not damaged. Under the CARES Act, Americans can now receive a free credit report weekly to keep tabs on their credit history.
Assess household resources. Calculate personal or household net worth (assets minus debts) to get a “snapshot” of their finances. Pay particular attention to cash on hand, emergency fund savings, and cash value life insurance and retirement savings plan assets that could be borrowed against, if necessary.
Make plans to catch up on overdue payments. Remember that bills temporarily halted by a forbearance or moratorium (e.g., rent and utility bills) must still be paid in full in the future so set money aside for this also. Hopefully, people have been using extra unemployment benefits or windfalls like a tax refund to get caught up.
Also, take advantage of employer health insurance for as long as it lasts. After that, four options for coverage are a spouse’s employer plan, Medicaid (if eligible), COBRA through the employer, and Marketplace coverage under the Affordable Care Act. ACA options are usually cheaper, especially if you qualify for subsidies with a reduced income. Check out www.healthcare.gov for additional information.
Consider a Roth Conversion. Convert a traditional IRA balance to a Roth IRA if COVID-19 has reduced 2020 income and people are in a lower marginal tax bracket. Federal income taxes on the converted amount are due, along with a tax on other income sources, in the year of the conversion (i.e., 2020 taxes due in April 2021).
Also, automatically withhold or set aside at least 10% of your unemployment benefit for income taxes. This includes both “normal” state benefits and the extra $600 per week of federal government aid under the CARES Act through July 31. Stimulus payments, however, do not have to be included in taxable income for 2020.
Also, complete a new Form W-4 withholding calculation (for a reduced income) and take advantage of income-based tax credits (e.g., earned income tax credit and savers credit) that you may not have qualified for before.
Expect volatility. Accept the fact that the value of your investments will rise and fall. This is part of having an “investor’s mindset.” Build a portfolio that is well-diversified by asset class (e.g., stocks, bonds, cash equivalent assets) and securities within each asset class.
Upskill” yourself. Use newly found free time to prepare yourself for re-employment with your current employer or elsewhere. Focus on gaps in your skillset and making yourself as marketable as possible with a college degree, certification program credentials, new technology skills, and other traits that employers value.
In addition, increase your financial literacy. Set a goal to learn something new about personal finance every day. Financial knowledge helps build financial preparedness, which can increase resilience in tough times.
Let us shift now from finances to other aspects of life that have been impacted by COVID-19.
Lack of a daily schedule is a big one for people who have been laid off or furloughed. Experts recommend planning out your days to avoid feeling “unmoored” from normal routines. Include some type of physical activity every day and one or two other big “time chunks” such as continuing education or virtual socialization.
Control controllable things. Get a sheet of paper and draw a table with three columns: Control, Adapt, and Monitor. List events and actions you have control over in column 1 (e.g., scheduling daily routines, self-care activities, home organization tasks, and new spending patterns), followed by those you can adapt to in column 2 (e.g., working from home), and those you should pay attention to in column 3 (e.g., state COVID-19 laws).
Be grateful, helpful, and creative. List five things that you are grateful for every day. Doing this can help foster optimism. Also, find ways to support others. It will help other people cope with COVID-19 and make the helper feel good also. In addition, develop creative COVID-19 workarounds. Zoom parties, COVID-19 themed songs and videos, artistic face masks, and drive-by graduations and parades are just a few recent examples.
Take deep breaths. Acknowledge that you may be feeling confused and overwhelmed right now. Big parts of your work and family life have been turned upside down. Many people are not balancing work and family. They are balancing work with family. You are not alone. Many others are feeling the same way. Health experts often recommend deep breathing as a way to lower stress. Try it and see if it helps.
OneOp recently presented a webinar about building resiliency resources: https://oneop.org/event/61161/. The show notes for the webinar include a wide variety of resources and the webinar recording is available free of charge.
Building Financial Resilience 20 Resources for Financial Peace of Mind webinar
Music, “New Day,” by Mona Wonderlick via SoundCloud
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