How to Enhance Your Finances During a Pandemic
Jay Abolofia, PhD, CFP® is a fee-only, fiduciary & independent financial planner in Waltham, MA serving clients in Greater Boston, New England & throughout the country. Lyon Financial Planning provides advice-only comprehensive financial planning for a flat fee to help clients in all financial situations.
COVID-19 has impacted almost every aspect of our lives. Most of us are homebound, which means working virtually, caring for and educating our children full-time, cooking more and surviving in a world of nominal human contact. Many of us have also experienced health and financial shocks, including loss of income and savings, unemployment, sickness or death of a loved one. Although many experts believe we are nearing the peak of the outbreak, there is still a great deal of fear and uncertainty about the future.
The impacts of COVID-19 extend well beyond your finances. That said, there are a variety of things you can do now to improve your current and future financial situation. Below is a list of ideas to consider, along with relevant resources. The Consumer Financial Protection Bureau may also be a useful resource.
INVESTMENTS
Don’t make any drastic moves with your investments.
Revisit your financial need for risk. If you can meet all your financial obligations and goals without taking as much risk as you currently have, now is a fine time to de-risk by selling stocks.
Revisit your financial capacity and emotional tolerance for risk. Never hold more stock in your investment portfolio than you can either afford or tolerate.
Your future earnings have bondlike qualities. If you’re further from retirement, this means you can afford to hold more of your savings in stocks than those who are in or nearing retirement.
If your income is secure, rebalance your investment portfolio to your target asset allocation. This will require selling bonds to buy stocks. To minimize taxes, make trades in retirement accounts or invest future contributions, dividends and capital gains distributions in stocks.
If you’re nervous about your income or have experienced job loss, free up cash now to cover near-term expenses. If this requires liquidating assets from your investments, start by selling bonds in your taxable accounts.
If you’re nearing retirement, consider working longer, delaying Social Security, paying down debt or purchasing longevity insurance via a lifetime income annuity.
With stock prices down, now may seem like an opportune time to invest more heavily in the market. However, I caution you to never confuse investment with speculation.
Fire your expensive financial salesperson. Partner with an independent fee-only financial planner who charges a flat rather than asset-based fee and is legally bound to always act in your best interest, not just when it’s suitable.
CASH
Build and maintain an emergency fund of 3-6 months of living expenses in a bank savings account, in case of job loss or unforeseen medical expenses. Always hold at least enough cash to cover your annual health insurance deductible.
If you’re nervous about your income, reduce retirement plan contributions to the minimum to get the employer match, cut back on Employee Stock Purchase Plan (ESPP) contributions, or exercise and immediately sell vested stock options.
Revisit your discretionary spending to identify excess and cutback where possible. Make sure you’re saving enough. Track your spending using software.
Hold cash at an insured bank or credit union and optimize your FDIC and NCUA deposit insurance coverage.
Negotiate prices for your internet, phone, rent, utilities and auto insurance.
If your income is secure and emergency fund sufficient, now may be an opportune time to replace certain durable goods, like your car, or have external work done on your home.
If you find yourself with excess cash, like your stimulus check or tax refund, top off your emergency fund, pay down high interest debt, make contributions to your IRA or Health Savings Account (HSA), or invest in low cost index funds in a brokerage account.
DEBT
Refinance private student loans, consolidate credit card debt, and refinance your mortgage.
If you’re nervous about your income or otherwise need cash, take advantage of the forbearance and 0% interest on your Federal student loans and pause student loan payments through September 30th.
If you can’t pay your mortgage, contact your service provider to ask about relief options like payment forbearance.
If your income is secure and emergency fund sufficient, pay down debt, starting with the highest interest loan first. Use software to optimize your repayment plan and take control of your budget.
WORK
If you’re unable to work due to the outbreak, you may qualify for paid sick leave or expanded family and medical leave. New provisions from the Department of Labor will apply through December 31st.
If you’ve lost your job or seen your self-employment income dry up, you may qualify for unemployment insurance. The Federal gov’t has expanded unemployment benefits in response to the outbreak. Programs are administered by the state where you worked.
If you’re a small business owner, look into applying for a Federal loan through the Small Business Administration (SBA). The Payment Protection Program (PPP) offers loan forgiveness if funds are used for payroll costs, and is available to small businesses and non-profits, including sole proprietors, independent contractors and self-employed persons. (Note that the SBA is currently unable to accept new PPP applications, but additional funding may be available soon. For a traditional small business loan, consider the SBA 7(a) loan program.)
If your job is secure, update your resume and LinkedIn profile, cultivate centers of influence and stay in touch with your professional network. Continue to interview, contact recruiters and build new skills.
INSURANCE
Revisit your insurance coverages, including life and long-term disability insurance. Note that your group coverage through work may not be portable if you lose your job or change employers.
TAXES
The IRS extended the Federal tax return deadline to July 15. This includes first and second quarter estimated tax payments normally due on April 15 and June 15. Many states have followed suit, but make sure to check your state’s deadline. If possible, delay paying State and Federal taxes until July 15 if you expect to owe money, otherwise file immediately.
If your income is secure and emergency fund sufficient, maximize annual tax deductions for 2019 by making contributions to your IRA or HSA before July 15.
With the markets down and historically low tax rates, now may be an opportune time to do Roth conversions if your income is secure and you have the cash to cover the tax bill.
ESTATE
Revisit your estate plan, including your last will, durable financial power of attorney, health care proxy and trusts if you have them.
Make sure titling of your accounts and property, and beneficiary designations are up to date, and in line with your estate plan, especially if you have a revocable living trust.
Have a conversation with loved ones about your wishes for end-of-life care and create a living will.
The Secure Act eliminated the “stretch IRA,” which may make Roth conversions more attractive for your heirs.