
The coronavirus pandemic has upended the lives and finances of millions. A federal relief package aiming to provide payments to distressed consumers passed Friday ā but that money is not likely to land for a number of weeks.
While you'll have to wait for whatever money you might be eligible for, now is the time to prep your finances and plan. The best use of this money depends on your individual circumstances. Hereās how to think it through.
DO THIS PREP WORK, REGARDLESS OF YOUR SITUATION
This is the time to examine your money situation and build savings, if possible. The fallout from the pandemic may continue for some time. Taking even small steps can help you feel empowered and less stressed.
First, take stock of your regular expenses, such as housing costs, car loans and credit card or other debt payments. A budgeting worksheet can help account for everything and show whatās going to needs, wants and savings and debt. Once you see the big picture, consider trimming where you can because of the current uncertainty.
āWeāre all operating on a limited cognitive load right now,ā says Kristen Holt, CEO of the nonprofit credit counseling agency GreenPath Financial Wellness. āWriting everything down and thinking it through first before you spend any of the money out the door would be a good idea.ā
IF YOUāVE LOST YOUR JOB, DONāT WAIT TO ACT
Those whoāve lost jobs might feel like the floor has fallen out from under them. Money from the government will provide a much-needed boost, but it might be weeks or even months before you get it. And youāll likely need to supplement and stretch it.
āThe amount of these checks is not going to go very far for paying peopleās regular bills,ā says Carol Fabbri, principal at Fair Advisors, a Colorado-based financial planning firm. āThey need to reduce their bills as much as they possibly can, then think about Maslow's hierarchy of needs ā you need to eat, you need shelter ā and focus your spending there.ā
With that in mind:
TAKE ADVANTAGE OF ALL SOURCES OF HELP: Pick up the phone and call your creditors. Explain your situation and work out a way to either delay payments for a few months or work out new minimum payments. Given the unprecedented nature of this moment, many creditors are offering ways to make payments more manageable for consumers. For homeowners, there are mortgage assistance programs you can tap if you canāt pay your mortgage.
Explore resources to help manage and minimize expenses. File for unemployment if youāre eligible and use any resources your former employer may offer. Calling 211 will connect you with local health and social services organizations.
MAKE A PLAN FOR THE MONEY YOU GET: Focus on necessities, like housing and food, to ensure your basic needs are met.
If you have anything left over, you might be tempted to throw this money at debts. But saving should take priority right now, says Diane Pearson, a financial adviser at Pearson Financial Planning in Pennsylvania.
āWe donāt know how long this situation might last and there might be a need for this money down the road,ā Pearson says.
IF ITāS STILL NOT ENOUGH: For many people, this money wonāt cover all of their expenses, even after all governmental and nonprofit resources are tapped. In that event, accruing debt to cover expenses may be a last-resort option but can be done strategically. Many of the ārulesā about using credit cards donāt apply right now.
āIf you're going to get further in debt, do it with a plan and make sure youāre utilizing the best available options for you,ā Holt says. āDonāt assume there arenāt options.ā She suggests exploring loan options from local credit unions, for example, and steering clear of high-interest loans like payday loans.
IF YOU STILL HAVE YOUR JOB, BUILD SAVINGS
For those who still have a regular income but not much in the bank, a government payment is a chance to build financial resilience.
BUILD SAVINGS: If you donāt have an emergency fund or youāve exhausted it already, starting one with this government money would be a good idea.
āAn emergency fund is more essential right now than it has been in all of our lifetimes,ā Fabbri says. āWeāre all vulnerable in this economic situation.ā
Fabbri suggests putting your money in a high-yield account, like an online savings account, so you can earn more interest than you would in a traditional checking account.
Designate your emergency fund for exactly that ā a cash crunch. The economic impact of the pandemic is likely to last, so conserve cash as a safeguard for whatever headwinds you encounter.
IF YOUāRE FINANCIALLY SOUND, CONSIDER HELPING
If youāre still employed and have some emergency funds, consider yourself fortunate. If you qualify for a government payment, think about using it as stimulus, not relief. Consider donations to charities ā avoid scams by navigating directly to known and trusted organizations ā or patronize small businesses that are hurting.
āIf youāre in the lucky place where you have protected yourself already, then itās a wonderful time to give,ā Fabbri says. āGet a gift certificate for a nail salon or restaurant that you typically go to. If you can afford to do that, itās a great way to support your community.ā