But for those who are lucky enough to still have their jobs, there are lots of questions about what they should be doing with their money.
That’s because the future of the economy is uncertain as states consider the best ways to reopen and businesses and schools consider what could happen if infections rise or we have a second outbreak in the fall or winter.
That means for most people, job security is less than perfect.
“Certain people and businesses were either blessed, like Amazon, or cursed, like restaurants, because of the virus,” said Jerry Lynch, a certified financial planner with JFL Total Wealth Management in Boonton. “A lot of this had nothing to do with your skill set or brilliance.”
If you are fortunate enough to be employed during this time, Lynch said, it’s time to ask yourself the question: “If I wasn’t picked to stay employed, what would my personal financial situation be?”
Lynch said if you are not sure of the answer, or if you don’t like the answer, then you need to work on your Plan B, and possibly a Plan C.
SET CASH ASIDE
Financial planners always recommend you keep an emergency fund, and the importance of having a cash nest egg has never been more clear as so many of those who applied for unemployment have waited for six weeks or longer for benefits to kick in.
During this difficult economic time, emergency funds have helped tide people over during interruptions in employment and income, said Claudia Mott, a certified financial planner with Epona Financial Solutions in Basking Ridge.
She said the amount needed can range from three to six months of expenses for a two-income household to a year’s living expenses for those in retirement.
“These funds should be held in a liquid account or perhaps a CD-ladder to earn a little interest, but should not be invested and exposed to market risk,” she said. “If you’ve taken the time to understand your monthly cash flow needs, you’ve got the basis for determining how much should be set aside for an emergency fund.”
If you haven’t used your stimulus payment yet, consider adding it to your emergency fund.
The easiest way to set money aside is by using an automatic deposit from your paycheck.
Open a bank account with the most inconvenient bank in your area, Lynch said.
“It can’t have an ATM, no check writing, and it can’t be open on the weekend or at night,” Lynch said. “I want you to start sending money there automatically from every paycheck. You can get there if you really need to, but it won’t be easy to invade.”
If you don’t already have a home equity line of credit (HELOC), consider getting one. Don’t use it, but it can give you access to cash if you ever lose your job.
CONSIDER YOUR SPENDING
Because of stay-at-home orders, you may have reduced expenses for eating out, leisure activities and vacations, said Deva Panambur, a fee-only planner with Sarsi, LLC in West New York and an adjunct professor of personal finance at Montclair State University. At the same time, you might have increased expenses in other areas such as groceries and home entertainment.
“The former tend to be bigger expenses so net of everything you probably are saving more,” he said. “Keep in mind, when the economy re-opens, your expenses on things that you have been unable to do may shoot up, so you will want to prepare for that.”
If you’re not sure that your spending is in line with where it should be, now is a great time to consider some changes that may be beneficial in the long run.
Mott suggests you commit to using some type of tool or app to track your spending and to really get to know what it costs you to live on a month-to-month basis.
Even better, try to compare the last few months to a similar time frame in 2019 to see where changes have taken place, Mott said.
“Many banks now have tools that categorize transactions coming into your accounts or there are apps like Mint.com and You Need a Budget or software such as Quicken that will provide similar capabilities,” she said. “What matters most is picking what works best for you and committing to use it.”
Understanding cash flow — the difference between income and expenses — is the basis for being able to create savings strategies.
Pay attention to categories that have decreased but may be temporary, such as commuting and paying for gasoline, so you can account for future increases if life gets back to normal, she said.
But you may find some permanent changes to make.
“These past few months have shown that we can live with a lot less than we used to,” Mott said.
If you find that overspending is your norm, you can take more drastic steps.
“Take your credit cards, put them in a Ziplock bag, fill with water, then freeze,” Lynch said. “If you really need it, you can defrost it and charge what you need to, but it stops impulse buying.”
At the same time, delete any credit cards stored on your online shopping accounts so buying over the internet is less convenient and you’ll have to go through the process of getting your card number to make a purchase.
THINK ABOUT YOUR DEBT
If you have extra cash flow now, it’s a good idea to look at your high-interest debt such as credit cards or private student loans.
“Adding more to the payment than the required minimum or making an extra payment or two throughout the year will help shorten the payoff timeline and save on interest expenses,” Mott said.
Once these debts are cleared, the payments can be directed towards a new savings goal, Mott said.
DON’T IGNORE RETIREMENT PLANNING
You should continue to contribute as much as possible to your retirement accounts such as a 401(k) plan offered by your employer. At the very least, you should save enough to get any matching funds offered by your company.
In 2020, you can contribute $19,500 pre-tax to the 401(k) plan offered by your employer, Panambur said. If you are over the age of 50, you can contribute another $6,500.
If you’re self-employed or you own a business, you can open a business retirement plan such as a SEP IRA or a 401(k) that’s suitable to the structure of your company.
As a self-employed person or business owner, you can contribute $57,000 or $63,500 for those over age 50 — depending on your income, Panambur said.
If those kinds of accounts are not an option, you can open an IRA.
You can set aside $6,000 in 2020, or $7,000 if you’re over age 50, he said.
“If your income is lower than $206,000, if married filing taxes jointly with your spouse, or lower than $139,000 for single individuals, you can open a Roth IRA and enjoy tax-free compounding,” he said.
In 2020, you can contribute $6000 ($7000 if over the age of 50) to a Roth IRA.
“You are very fortunate as you were not picked for the unemployment line, but luck only lasts for a while,” Lynch said. “The way to get through difficult times like these is to have low expenses and liquidity to carry you through.”
“If your plan relies entirely on your income, at some point in the future, you will not be so lucky,” he said.
Karin Price Mueller may be reached at firstname.lastname@example.org.