A Coronavirus Financial Plan: 5 Steps
- Scale back spending while you're not commuting.
- Create a budget and maximize your savings.
- Get professional debt help if you lose your job or get sick.
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Achieve financial control. How much debt do you have?
What is a financial plan? Basically, it’s a roadmap to help you cut expenses and weather the storm when finances are tight and the future is uncertain — as it is right now, during the current coronavirus outbreak. It involves taking stock of your current and future income (Have you been laid off?) and assets (Do you have a rainy day fund?), managing your debt, and doing what’s necessary to make ends meet.
At time of publication, lawmakers in Washington are preparing a massive, trillion-dollar economic relief package to soothe anxious markets and give aid to U.S. consumers and businesses impacted by the coronavirus. Once signed, the package will most likely give direct cash payments to individuals, federal tax deferrals, emergency small business loans, and other measures. Helping the U.S. economy will limit the damage on a national level, but each household should create a smart financial plan of their own.
So, let’s dig in. The following coronavirus financial plan outlines five important steps you can take right now to help you get through this difficult time.
1. Put together a budget, and stick to it
Just as testing and tracking are critical to getting a handle on a pandemic, it’s really important to get a clear picture of your household finances when creating a financial plan. To get you through the next few months you should create a budget that tracks your income, expenditures, and debt. While it may seem daunting at first, you can track these items in a simple spreadsheet or even use freely available templates that work with the free Google Sheets application. Start with the basics (income, monthly bills), and then fill in with more details as you get the hang of it.
Tracking your actual expenditures, which may seem tough at first, will help you get an accurate picture of your finances. Some expenditures, such as groceries and electricity, are necessary. But if you’re coming up short at the end of the month and know that you spend a certain amount of money, maybe you can put a pause on services you aren’t using right now. Think of a few activities outside the home you may have to take a break from, especially if you receive a shelter at home order:
The gym – take a walk around your neighborhood instead
Nails, hair, barber – save this money for a treat when you are back on your feet (and can safely go out)
Sports, theater, movies, concerts – again, save up for a an outing when you and your finances are in a safer place
2. Use or build your rainy day fund
Ideally, you should already have an emergency fund (i.e., cash and savings on hand) available for when an emergency strikes. But it’s never too late; after all, the current crisis we’re all facing could go on for a while. The truth is that more than half of U.S. adults are not financially prepared for an outbreak or other emergency. Most financial experts recommend that U.S. households keep six-months’ worth of cash in the bank for emergencies. While that much of a cash cushion may not be realistic for everyone, it’s a good goal to work toward.
Some ideas to help you build your rainy day fund include:
Cut back on your spending, especially discretionary spending (this may sound obvious, but it’s a good first step)
Switch to direct deposit (if you haven’t already), and automatically move a portion of your paycheck into a dedicated savings account
Think about putting any emergency fund savings into a high-yield account, which will give you a slightly higher interest rate
If you are lucky enough to already have that emergency fund, this is probably the rainy day you have been saving for.
3. Maximize your cash and other accessible assets
Generally, a liquid asset is one that can easily be converted into cash. These assets can be used at any time without incurring a penalty, and their value remains relatively constant. Liquid assets also may be materials or ingredients that you use to make something you otherwise would have to buy new, for instance, meals. The term asset refers to anything of value and a liquid asset is anything of value that can be used right away.
To stretch your budget, be sure you maximize your liquid assets, including:
Money market funds
Certificates of deposit (assuming they’ve matured)
Food in your pantry
4. Pay attention to your credit cards
The average U.S. household with two credit cards spends roughly $90 in interest payments per year, with some five-card households paying more than $1,000 in interest annually. Credit cards are easy to use and can be great in emergencies, but they will create new problems if you kick the credit can down the road month after month. As you put together your financial plan, make it a priority to limit your use of credit however you can. If you already have credit card, student loan, or other forms of unsecured debt, then make a plan to reduce your debt.
One proven way to pay off your credit card debt is the “snowball” method. This method uses the following steps:
List your debts from smallest to largest
Pay the monthly minimum for each one, except for the smallest debt
Dedicate as much money as you can to the smallest debt until it’s paid off
Move on to the next-smallest debt and repeat the process
5. Talk to your creditors
If you’re concerned about your debt, whether it’s secured (home, car) or unsecured (credit card, personal loans), your best course of action is to get out ahead of the curve. If you have a financial hardship, you may talk to your creditors about any forbearance program they may have. So if you’re falling behind on monthly payments, it may be in your best interest to pick up the phone and talk to your creditors.
Considering the broad impacts of the coronavirus outbreak, many creditors may be willing to work out a reasonable plan. Some creditors may let you skip the interest charges on your debt and just pay the principal (the initial amount of money loaned, minus fees or interest). What your creditors are able to do for you will depend on the type of loan, their specific policies, and your circumstances as a borrower, but contacting them early is key.
Consider getting some help as part of your financial plan
When life takes a major detour, it’s important to chart a new path. If you’re responding to the coronavirus pandemic by drafting a financial plan, then you’re off to a great start. But, depending on your situation, you may need to take additional action. Freedom Debt Relief can help you understand your options for managing your debt, including our debt settlement program. Our Certified Debt Consultants can help you find a solution that will put you on the path to a better financial future. Find out if you qualify.