11 ways to improve your financial situation during a crisis
The coronavirus pandemic has dealt a severe blow to the economy and personal finances of workers across the country. Experts predict that the total number of unemployed Americans can reach a whopping 47 million. Of those who have not yet lost their jobs, many reduce their wages or working hours, as business owners try to stay afloat, recalls GOBankingRates.
Regardless of whether you lost your job or encountered other financial difficulties, there are several effective ways to improve the financial situation during a crisis.
View your budget
Do this to know exactly how much money you have and how much you need to cover basic needs.
“The budget is the key to feeling financially secure right now and determining whether you can make ends meet,” said Tony Drake, CFO and founder of Drake & Associates. - Write down the budget. List all expenses, including fixed costs such as mortgages, car payments, and cell phone bills. It should also include variable costs such as utility bills, food and entertainment. Then determine how much income you are getting. If your expenses outweigh your income, you will have to carefully consider where you can cut, even if it is temporary. "
Reduce as many unimportant costs as possible
“In these unprecedented times, there are many things that you cannot control, but you can manage your savings and expenses,” said Lindsay Sacknoff, head of consumer deposits and payments products at TD Bank. "Today's financial decisions will create a cushion to help you plan for what may lie ahead."
To that end, she recommends cutting down on unnecessary expenses - any expenses for groceries, prescriptions, rent, and utilities.
“By cutting out any essentials from your budget, you can easily save several hundred dollars in the coming months,” Sackoff said. "Suspending your gym membership, canceling a service you never use, and cleaning your home instead of a cleaning service — it all works."
Reevaluate costs for some needs
While it is best to cut down on unnecessary costs, you can factor in the costs of some of the needs in your budget — although those “needs” may look different now than in the past.
“Taking into account the cost of basic necessities such as transportation or childcare, you can reallocate those funds to new 'needs' such as buying games for your kids at home, or streaming TV and movies online, fitness or a meditation app, ”said Shelley-Anne Eveka, director of asset management at TIAA. "In addition to protecting your wallet, it is important to prioritize the mental health of you and your family in this new reality."
But set a budget for situational expenses
“While it's easy to assume that quarantine will automatically cut your costs, food delivery and online shopping can force us to quickly ramp up credit card bills,” says Lauren Anastasio, chief financial officer of SoFi, a personal finance company.
She recommends setting a new budget that takes these situational costs into account.
Try to reduce fixed costs
“Look at your utility and insurance bills to make sure you're getting the best rates,” said Howard Dworkin, chairman of Debt.com. "Save water, electricity or gas in a way that's good for your wallet and the environment."
View your savings
Find out how much savings you have in savings accounts, emergency funds, retirement and other accounts.
Drake recommends asking yourself: will you need to use your savings to make ends meet? If so, what options do you have and how will each affect your financial future?
Put as much as you can while you can
“As we enter a potential period of unemployment or declining income, we want to have the greatest possible financial cushion,” Anastasio said. “If your pay hasn't been lowered yet, you've been fired, or your income hasn't been cut in any other way, do your best to raise as much money as possible with the income you still have.”
Create an emergency fund
“As the COVID-19 pandemic makes clear, financial turmoil can strike suddenly,” said Greg Klingler, director of asset management for the Civil Servants Association. - An emergency fund is an important part of your budget and you may need to contribute slightly less to your savings (retirement or debt payments) and / or desires (entertainment, clothing, etc.) in order to build and fund it. All Americans must maintain the fund at the level of necessary expenditures for 3-6 months in cash. "
Set priorities for debt repayment
“It can be challenging to pay off debt obligations in addition to your other bills, but you need to work hard to deal with high-interest debt, such as credit card debt,” Drake said. "We spend most of our money on high interest rate debt, so don't let it build up right now."
Drake recommends using the avalanche method to pay off existing debts: “Start by arranging the payment of your debt at the interest rate. Set priorities in the direction of debt with the highest interest rate, while leaving the minimum payments on the rest. Once this debt has been paid, go to the next highest interest rate. ”
Continue to contribute to pension savings
Covering basic necessities and setting up an emergency fund should be your priorities, but if you can continue to contribute to your retirement savings, you must do so.
“Many people are faced with difficult circumstances that require a temporary reduction or termination of retirement savings,” said Eveka. - However, you should continue to invest in your pension as much as possible. Perhaps this means setting aside funds that you have been saving for the coming months, such as kids' sports or extracurricular activities, and investing those expenses in savings. "
Keep calm and invest
With all the volatility of the market, it is tempting to make money on your stock portfolio before the values get even lower, but Klingler advises against this.
“While you and your financial advisor should periodically evaluate and carefully consider the balance of your portfolio, it is important to remind yourself that you are not playing the game: you are investing long term and in your long term financial security,” he said. “Patience is truly a virtue when faced with constant volatility in the stock market. Unfortunately, I have seen large numbers of clients make emotional, reckless decisions during turbulent market conditions, only to see quick backfire undermining their long-term financial security and putting them on a very difficult path. ”
What to do if you have lost your job or your income has decreased
As a result of the coronavirus pandemic, many Americans were temporarily unemployed, went on vacation, or faced wage cuts, so they may have to take additional steps.
Call your credit card company if you are late with payment
“Prioritize quickly what bills you can pay this month. In some cases, it is simply not possible to pay for all of them. If you find that you cannot pay with your credit card, call your credit card company and see if they can give you more time and waive any interest, Eveko advises. "It might give you a little more time to get help."
Talk to all your lenders
In addition to your lending company, talk with other lenders to find out if they can offer assistance.
“Many lenders are willing to offer you payment options or even deferrals for some of your biggest expenses, including mortgages, car loans, student loans, and more,” Anastasio said.
Apply for unemployment benefits
If you lost your job, apply for unemployment benefits as soon as possible.
“The Coronavirus Financial Assistance Bill has strengthened unemployment benefits,” Klingler said.
According to the bill, the federal government will give the unemployed an additional $ 600 per week in excess of their benefits for four months. But be prepared for the usual two-week waiting period before you receive your first money.
“Applying for unemployment benefits involves a waiting period of usually seven days, and applicants can wait an additional seven days for their first check / deposit to be processed,” Klingler said.
Consider obtaining a Home Equity line of credit
If you do not have enough financial pillow to survive the loss of work, and unemployment benefits are not enough to make ends meet, you will need to find additional sources of income. Klingler said your line of credit should be your first choice.
“If you have equity in the form of a house and an open HELOC, you can access this share,” he said.
Withdraw your plan 401 (k)
If HELOC is not your option, you may want to consider borrowing from a 401 (k) retirement account.
“The new Coronavirus Financial Assistance Bill allows individuals under the age of 59,5 to distribute up to $ 100 out of their 000 (k) without paying a 401% penalty,” Drake said. "Be sure to talk to a financial professional about your options before withdrawing money from retirement accounts."
Take out a personal loan - but read the fine print
You may need to take a personal loan or a line of credit at this time, but do not rush to accept the first offer you receive.
“Do your research and read the fine print,” Drake said. - Tariffs and interest rates can increase rapidly, so it is important to understand what you are signing up for. Explore other options before agreeing to any form of loan. ”
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