Written By: Barbara O’Neill, Ph.D., CFP®, AFC®, CHC
During the past six months, I have presented about a dozen COVID-19 and Your Finances presentations and webinars, including this webinar for Cooperative Extension colleagues. I began each presentation by describing similarities between transitions in later life, described in my new book Flipping a Switch, and those experienced by Americans as a result of COVID-19. Examples include adjusting to a changed income, creating a “paycheck” from multiple income sources, keeping busy, too much “togetherness,” and becoming “fraud bait.”
In my presentations, I describe three categories of Americans according to financial impacts of COVID-19: 1. Reduced Income and Struggling, 2. Stable Income, But Anxious, and 3. Increased Income with Opportunities.
I then describe the following financial tips for all Americans and for those in each of the three impact categories:
- Get your estate plans in order: will, living will, and durable power of attorney. Over 550,000 COVID-19 victims (and counting) as of 3/30/21 is a major “wake-up” call to not leave any financial “loose ends.”
- Prepare a consolidated list of beneficiaries for life insurance policies and retirement savings plans.
- Prepare a list of digital assets with user names, PINs, passwords, and other account log-in data.
- Determine the impact of COVID-19, the CARES Act, and the American Rescue Act on your income taxes. For example, the charitable donation write-off for non-itemizers and arranging adequate tax withholding.
- Create an updated spending plan (budget) to reflect income/expense changes as a result of COVID-19.
- Use the Bill Calendar from the Consumer Financial Protection Bureau (CFPB) to summarize expenses.
- Identify and act on things that you can control (health practices, saving, spending, gifting, mindset).
- Get comfortable making financial and lifestyle plans again after a year of living in a “holding pattern.”
Group 1: Reduced Income and Struggling
- List, and then prioritize, three expense categories: needs (e.g., food, housing, utilities), obligations (e.g., court fees/fines, child support, insurance, taxes, secured and unsecured debts), and wants (everything else).
- Reach out for help from government and non-profit agencies. Call 211 or visit www.211.org to find local services.
- Reduce or eliminate subscription services and recurring payments (e.g., gym, satellite radio, streaming TV).
- Assess cash flow resources (e.g., emergency fund, cash value life insurance, retirement savings plan).
- Access local, state, and federal resources as needed (e.g., unemployment benefits and stimulus payments).
- Marshall social capital resources through family and community connections.
Group 2: Stable Income, But Anxious
- Prepare for a furlough: multiply daily pay by a number of furlough days to determine potential lost income.
- Cut spending to build up an emergency fund and/or accelerate debt repayment using PowerPay as a guide.
- Consider making human capital investments (e.g., certification programs, in-service training, short courses).
- Start a “side hustle” (freelancing) for additional money to save and to have “fall back” income, if needed.
- Consider refinancing your mortgage to take advantage of current low interest rates.
Group 3: Increased Income with Opportunities
- Save/invest positive cash flow resulting from increased income and/or reduced expenses.
- Make prudent home improvements with a high return on investment (e.g., kitchen and bath remodeling).
- Be careful about co-signing requests and “loans” and/or long-term support of others.
- Consider charitable gifting and serious philanthropic methods (e.g., qualified charitable distributions, donating appreciated securities, and establishing a donor advised fund or charitable trust) to help others.
Every American has been affected by COVID-19 in one or more ways. As noted above, some observers have even called COVID-19 lockdowns a preview or “dress rehearsal” for transitions in later life. Many are also predicting a disparate “K-shaped” recovery. Use this article to identify strategies that might be useful personally and for the clients that you serve.