Take steps to protect your finances.
As we all go through these difficult times nationwide and around the world, we must stay positive and look for ways to be proactive with our finances. Consider taking the time to review your situation and create a plan. Here are a few ways that you can better protect your finances and look to the future in tough economic times.
Government Relief & Resources
In response to the current COVID-19 crisis, U.S. lawmakers passed legislation that includes several economic stimulus measures. Some are related to individuals, including stimulus payments to taxpayers, while others are for businesses. To find resources and see if you qualify for government relief, see the Benefits.gov Coronavirus Help Center, including links to unemployment assistance by state which has been expanded to include self-employed workers, contract workers and even freelance workers who perform jobs that are a large part of the U.S. economy. For tips to protect your finances and links to specific resources in several languages, see the Consumer Financial Protection Bureau Coronavirus webpage.
Tight Finances Require Budgeting
As the backbone to any financial planning for your future, budgeting is important in good times and in bad times. The discipline and consistency of budgeting help you achieve your goals and maintain your household. Due to stay-at-home orders, many people are benefiting from a reduction of expenses related to commuting, entertainment costs or eating out. If you are able to cut expenses by staying at home, consider using that money to either build up your emergency savings or pay down debt. If your income has been affected by COVID-19, seek ways to replace your income like applying for unemployment as well as getting creative, maybe even looking for ways to supplement your income by working from home.
Build or Increase Your Emergency Savings
Unfortunately, there is no way to determine the duration or total impact of COVID-19. However, the financial fundamentals still prevail, such as building emergency savings, keeping bills paid on-time, and preparing for the unknown. It always makes sense to have emergency funds. If your employment has been impacted or you’re in an industry that may sustain layoffs, prepare yourself by boosting your savings as much as possible.
Low Interest Rates — Consider Refinancing
Interest rates have decreased to record lows by the Federal Reserve. If you would have refinanced before the COVID-19 event, and your employment is stable, consider whether it makes sense to refinance your mortgage, personal loan or car loan. It can be more challenging to refinance when there’s a reduction or loss in income, but it is not impossible, depending on the sources of income that you can document. You may be able to get a lower interest rate, a lower payment, or simply pay off a loan faster.
Explore All of Your Options Before Withdrawing Funds from Your Retirement Savings
You may want to only consider taking money out of a retirement plan like a 401(k) if it is a last resort to sustain your essentials, like paying your rent or mortgage, or buying food. Know if you are eligible for a 401(k) withdrawal, such as a hardship or in-service withdrawal. If you take a withdrawal, be aware of the tax consequences. Check out IRS updates at https://www.irs.gov/newsroom/coronavirus-relief-for-retirement-plans-and-iras.
You may want to consider whether you may be able to take a loan instead of a withdrawal. A loan will need to be repaid each pay period, but it avoids the taxation of a withdrawal. Also, keep in mind that taking out a retirement loan could significantly reduce your take-home pay, depending on the size of the loan. Check with your plan administrator to understand your options. Always get advice from a tax specialist before doing anything that will impact your tax burden for the year.
Understand the potential risks of taking a retirement plan loan. Your net income will be reduced by your loan payment which may impact your ability to meet your other financial obligations. If you leave your employer, you may be required to repay the loan in full or owe income taxes and a 10% penalty on the outstanding balance. See IRS Retirement Topics – Retirement Loans for more information.
If you are nervous about the investments in your retirement plan, talk with an investment professional to see if it makes sense to update your plan, but if possible, you may want to consider keeping the money in the plan and instead consider re-balancing or re-allocating the investments. Market volatility is normal in investing, and understanding that economic cycles happen every few years will help you focus on the long-term goals of investing in a retirement plan. If you can continue to invest, it means you are purchasing shares in your retirement plan when prices may be lower, which could balance out over time, as market conditions improve.
Maintain Insurance Coverages
Nothing protects you and your family from risk like insurance does. Even if your finances are tight, protect your home, your vehicle, your possessions and your health. If you have suffered a job loss, see if you qualify for health insurance through healthcare.gov.
If you have loved ones who rely on your income, consider carrying life insurance — at least enough to cover your family’s essential needs should something happen to you. Employers often offer group coverage at very affordable rates.
Look for Opportunities
If you have stable employment even though you may be working remotely, or if you have money set aside beyond your emergency fund, then consider whether you can increase your monthly contributions into retirement accounts, college savings or continue to save for other goals. If you have discretionary income, then consider whether it makes sense to invest for the long-term and take advantage of lower market prices through a consistent recurring investment strategy (such as dollar-cost averaging) in which you deposit a consistent amount of money into an investment account with each pay period.
How My Secure Advantage (MSA) Helps
A Money Coach can help you or a member of your household do the following:
Whether it’s you or someone in your household who is dealing with limited work hours or a lay-off, you can seek help from a Money Coach. Together, you can talk about ways to get through this financial crisis. Call 888-724-2326 today.
Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money.
My Secure Advantage, Inc. or any of its representatives do not endorse any of the websites or company names listed here.
Government Assistance See Benefits.gov for the Coronavirus resources help center and up-to-date information on any programs you may be eligible for: https://www.benefits.gov/help/faq/Coronavirus-resources. To receive unemployment insurance benefits, you must file a claim with the unemployment insurance program in the state where you last worked. Depending on the state, claims may be filed in person, by […]
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