The coronavirus pandemic is undoubtedly the biggest crisis humanity has faced in over a century. With millions of confirmed cases worldwide, governments have taken various measures to curb the spread of the novel virus. Unfortunately, this has come at a colossal
Experts say the economic fallout from the coronavirus will be felt for years to come. With most industries in hibernation and millions of Americans already rendered jobless, chances are you too are worried about how your finances will fare. You may be earning a fraction of what you used to make pre-covid-19, or worse still, you may have lost all your income entirely.
Either way, you need to be proactive about your finances especially at this crucial time. This is key if you’re to navigate the coronavirus crisis and come out of it in a good financial position. So how can you use this period of self-isolation to create a smart financial plan?
Assess your new financial situation
According to Crediful, the first thing you ought to do is to get an accurate picture of your finances. If you’re like most people, your financial situation has likely deteriorated since this pandemic began. How you deal with the new financial reality is what will determine if you’ll come out scathed or unscathed after the crisis is gone.
Create a budget
Now that you have an accurate picture of your net cash inflows and outflows, it’s time to craft a budget. This will allow you to service your debts and leave you with enough funds to live on and save. Start by reducing your expenses to the least possible and also learn how to separate your wants from needs.
What do I need to stay healthy and safe during this health crisis? Anything that falls under this category should be prioritized including housing, food, and medicine. If you’re on a minimal income, you may have to stick to these most basic needs. Everything else goes.
The extra cash should go towards paying your debt especially high-interest debts, and if there’s any left, into your rainy day fund. The goal is to reduce your debt as much as possible while at the same time beefing up your rainy day fund. Sure, it won’t be easy adjusting to a smaller budget, but tough times call for tough measures!
Pay down your debt
Ideally, you should never let your debt build-up especially if you’re dealing with high-interest ones like credit card balances, payday loans, and title loans. You certainly do not want your credit score to take a severe hit as this could affect your finances for years. So what should you do even with the current economic downturn probably affecting your ability to clear debts as quickly as you’d like?
For starters, try to pay the minimum required balance. This will ensure negative bits like defaults and late fees don’t feature in your record. But if you’re not able to make the minimum payment, reach out to your creditors and explain your situation to them.
Most banks and credit agencies have made it clear that they’re willing to offer personalized solutions to people who can’t service their debt due to the pandemic. The only caveat is that you have to be proactive and initiate contact yourself.
Manage your rainy day fund
Current times have made it clear how vital a rainy day fund is. There’s absolutely no way the average American could have predicted how 2020 would turn out, but that’s precisely what an emergency fund is designed for.
Ideally, you should have 3-6 months’ worth of living expenses saved up. This should then be spent on the barest of necessities you need to live on. If you still have an income, direct at least 20% of your earnings into this fund.
An ample emergency fund will prevent you from relying on debt or withdrawing from your long-term investments if your cash flows dry out. If you didn’t have one or it isn’t enough to last you through the crisis, you may consider building it up even with the little money you’re getting currently.
Take advantage of the CARES Act
In the wake of the pandemic’s economic fallout, the US government passed a $2 trillion federal CARES Act to help Americans weather the crisis. The act provides relief of up to $1,200 per qualified adult, $2,400 for married couples who filed jointly and $500 per child under 17 years.
Have you created a new financial plan to take you through the COVID-19 crisis? How are you adjusting to the new economic landscape? We’d love to hear your feedback in the comments.
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