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Brief Commentary and 7 Steps to Successfully Steer Your Finances in a COVID-19 World
Since the economic crisis began, I have shifted my focus towards financial planning pieces that incorporate the COVID-19 crisis and its impact on your finances. This month, we want to look at various ways you might shore up your finances in today’s uncertain world. But before we head there, let's do a little economic and market check in.
Investors Positive, Consumers Gloomy, Nation Shudders in Protest and Violence
After 10 weeks of pandemic and financial crisis, we now have broad civil unrest throughout the country. Difficult times indeed. That said, the broad markets march onward.
The response by the Federal Reserve has far outpaced its 2008 response, which has lent a tremendous amount of support to stocks. The same can be said of government fiscal stimulus.
Investors are also keeping close tabs on state re-openings, which will reemploy furloughed workers, help stabilize the economy, and set the stage for a possible economic rebound later in the summer. Talk of vaccines has also helped. As stated previously, investors don’t simply look at today’s data, which in many cases is backward-looking. Instead, they are forward-looking as they attempt to price in economic activity, the level of interest rates, corporate profits, and more over the next 6-12 months.
If we look at what is called “high-frequency economic data” (daily or weekly reports), we are beginning to see signs of stability. Daily gasoline usage has rebounded, daily travel through TSA checkpoints is up, hotel occupancy is off the bottom, and the same can be said of weekly box office receipts. In addition, the weekly home loan applications registered its fifth-best reading over the last year, suggesting that low interest rates and some confidence that the U.S. economy is set to recover are lending support to housing.
Any given level of a major stock market index represents the collective wisdom of tens of millions of stock market investors. It is not simply an opinion, but an opinion with money behind it.
When stocks were in a free fall in March, investors were anticipating a devastating blow to the economy. Tragically, the data did not disappoint. Has the rally been too much, too quickly? Here is where we stand today:
Even in the best of times, economic forecasting can be difficult. Today, the outlook is clouded with a much greater degree of uncertainty.
- Will the virus lay down over the summer?
- How will reopenings proceed?
- How quickly can a readily available vaccine and treatment be developed?
- What might happen to COVID-19 next fall and winter?
- How quickly will consumers venture back in public and resume prior spending patterns?
These are difficult questions to answer. Don’t expect a return to a pre-COVID jobless rate anytime soon. But investors are betting that an economic bottom is in sight.
Now let's migrate towards today's topic:
7 Steps to Successfully Steer Your Finances in a COVID-19 World
1. Now is the time to build up an emergency reserve of at least six to twelve months. You don’t know what the future may bring and savings will help you weather a job loss, if it were to occur. If you have been laid off, the federal government is providing an additional $600/week in unemployment benefits. Some are earning more unemployed than when they were working! If you are in this situation, use the extra cash to build up your savings.
2. Start saving. If you met the income criteria, you received a stimulus check of up to $1,200 from the federal government ($2,400 if you are a couple). Now it’s time to eliminate unnecessary expenditures. Lockdowns have made the task easier. Yes, I understand that forced closures have had devastating economic impact. However, outlays on gasoline, Uber, car repairs, entertainment, eating out, and much more have been curtailed. Build up your rainy day fund.
3. Do you have a mortgage? If so, record low rates could save you hundreds of dollars every month. Review the numbers and determine if refinancing makes sense.
4. Are you making monthly payments on federally backed student loans? Through September 30, 2020, payments for student loans owned by the federal government are suspended and the interest rate is zero. No action is required by you. If someone contacts you and can stop payments provided you pay a fee, hang up the phone or ignore the email. This is a scam. Your deferred payments will allow you the opportunity to build up your savings. Or, if your finances are solid, any monthly payments will go entirely towards principal, enabling you to pay off your loans sooner than anticipated.
5. Consider college refunds and your 529 plan. With lockdowns, dorm closures, cancelled meal plans, and online learning, you may be due a refund from your college. https://www.collegeinvest.org/covid-19-college-refunds/ If you used 529 funds, your refund becomes a taxable distribution and is tagged with a 10% penalty.]] Normally, you have 60 days from the date of the refund to redeposit the funds without liability. Today, the period has been extended. If the 60-day period ends on or after April 1, 2020 and before July 15, 2020, the redeposit can be made any time before July 15, 2020 or 60 days after the refund date, whichever is longer.
6. Do you need financial assistance? Contrary to popular opinion, banks don’t want to get tough with borrowers. A bank’s business model is based on repayment of loans, not foreclosures. In today’s environment, many banks are willing to work with you, but you must reach out to them. The same holds true for utilities and other monthly services.
7. Mortgage forbearance programs may be available for those who have lost jobs due to the pandemic. Be sure terms being offered are reasonable. Again, reach out for assistance. Simply stopping payments will quickly get you into trouble.
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