Virtually every American has been impacted by COVID-19 in at least one way.
I recently presented a webinar for Rutgers University employees titled COVID-19 and Your Finances. In the presentation, I noted that Americans can be grouped into three broad categories with respect to the financial impact of the COVID-19 pandemic on their lives:
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Reduced income and struggling
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Stable income, but anxious
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Increased income with opportunities
No matter which category you fall into, there are actions you can take to improve your personal finances. Below is a description of key action steps for all Americans during COVID-19, as well as financial recommendations for each of the above categories:
Financial Tips for All Americans
Get Your Financial Affairs in Order: Over 293,000 deaths and counting due to COVID-19 and tens of thousands more “long-haul” cases with health complications should be a major wake-up call for all of us.
Key legal documents to prepare include a will, living will, and durable power of attorney.
Also take the time to prepare a list of your digital assets and beneficiary designations on retirement savings plans and/or life insurance policies.
Anticipate Income Tax Implications: There are a myriad of tax rules that will affect many Americans beyond 2020.
These can include tax on unemployment benefits, a $300 charitable donation deduction for those who don’t itemize, tax credits (e.g., Earned Income Tax Credit and Saver’s Credit) for workers who experienced a reduced income in 2020, suspension of required minimum distributions for 2020, and changes in tax liability as a result of changes in income (versus 2019).
These might also include possible new state income tax bills and non-resident tax return filing required for workers who decamped to other states to work remotely.
The above recommendations apply to all Americans. The following tips to heed as the pandemic continues are specific to the different COVID categories I mentioned earlier — though, of course, folks who have been relatively unscathed can follow the steps designated for individuals facing lesser earnings as a precaution.
COVID Financial Tips for Those With a Reduced Income
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Prioritize needs, obligations, and wants and reduce spending accordingly.
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Get help from local human services or government agencies by calling 211 or visiting www.211.org.
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Eliminate subscription services (satellite radio, gym membership, streaming).
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Assess financial resources (e.g., emergency savings, cash value life insurance, retirement plan).
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Remain insured (health, life, property) but inquire about possible ways to reduce policy premiums.
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Protect your credit by contacting creditors and negotiating leniency provisions that are not reported.
COVID Financial Tips for Those With a Stable Income
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Develop a “furlough preparation plan” by calculating the after-tax value of a day’s pay and equivalent expense reduction strategies to offset the loss of income.
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Increase your emergency fund via increased income, reduced expenses, or both.
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Accelerate debt repayment using the snowball or avalanche methods to repay more than minimum payments.
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Invest in your human capital with training, certifications, degrees, and good health habits.
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Start a side hustle to earn additional income and have fallback work, if needed.
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Consider refinancing your mortgage if the math makes sense.
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Rebalance your investment portfolio to your target asset allocation weights.
COVID Financial Tips for Those With an Increased Income
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Save/invest positive cash flow resulting from working at home and/or reduced spending opportunities.
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Make prudent home improvements with a high return-on-investment.
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Use caution about requests for cosigning and “loans” that become permanent gifts.
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Withhold sufficient income tax on additional income earned in 2020.
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Get serious about philanthropy to help individuals and organizations (e.g., start a donor advised fund or make qualified charitable distributions from an IRA).
The Bottom Line
In summary, everyone reading this post is in one of the three categories described above. Find the one that best describes you and your family and consider taking one or more of the suggested action steps to shore up your finances.
