Hey guys…it’s day 25 of quarantining in our house.
Like you, we’re binge-watching Tiger King, stress baking, and (less fun) experiencing
a reduction in our income.
We realize we’re in an incredibly fortunate position; being able to ride it out without
making significant sacrifices, but that is not the case for most.
As we’ve mentioned before, 40% of Americans can’t pay for a $400 emergency without credit.
Even if you’re not facing a corona-induced-cash-crisis YET, that doesn’t mean you’re out of the
woods.
The economic fallout from this disaster IS going to have an effect on your life, no matter
what industry you’re in.
Unfortunately, like this virus, anxiety is also contagious.
So it’s only natural that a lot of us are asking ourselves the same question: How do
I survive a financial storm?
Your first step needs to be to create an Emergency Budget.
Yep.
If you haven’t yet climbed on board the Two Cents budget train, 2020 is the perfect
time to start.
First rule of emergency budgeting is it must be written or typed out -- not in your head.
So find a spreadsheet or sign up for a budgeting software.
Some are completely free.
Second step is to gather data from the past.
That way you’re working with real numbers and not the amount you THINK you spend.
Start by looking at the last 2 months worth of transactions and make a list of everything
you spend money on.
This might take a little time, but hey, for a lot of us, time seems more plentiful than
ever.
Start by grouping the essential expenses at the top.
Housing, utilities, basic groceries, transportation and medical needs.
Second, list debt payments, like student loans or credit card minimums.
Finally list all your discretionary expenses, like entertainment, meal delivery,
and subscriptions.
What you’re looking at is your pre-crisis budget.
Now it’s time to use that data to draft your emergency budget.
Your first draft should take on a “Scorched Earth” feel by cutting everything below
your minimum debt payments.
Spotify, wine, Postmates, even Netflix.
Feels pretty bleak, right?
Don’t worry, we’re not done.
Now it’s time to create a second draft where you strategically pick discretionary items
to add back in.
This might be just one thing, like Netflix.
Or if your income took a less drastic hit, you can add back 3 or 4 things.
It might come as a surprise, but holding onto a couple tiny splurge items might actually
help you more in the long run than cutting them all completely.One survey showed over
half of americans owned up to impulsively shopping as a result of feelings of anxiety,
stress and depression and 83% of those stress spenders regret those purchases later.
For example, I find a lot of relief in being able to play a few online games.
So I’d rather maintain access to that outlet and cut out ordering in because I find cooking
less stressful.
You might have a different preference.
The point is that you need to give the pressure cooker a small but intentional release, that
way you’re less likely to make a massive impulse buy later.
Now that most of your discretionary spending is paused, it’s time to try and slim down
the expenses that make up the majority of your needs, your essentials.
And with almost 7 million applying for unemployment just last week, lenders and utility companies
are being especially lenient.
If you own a home with a mortgage and have had your income go down, reach out to your
mortgage company immediately to discuss options.
The two mortgage giants Fannie Mae and Freddie Mac are rolling out relief measures to help
millions of homeowners defer or re-work their loan payments.
Even institutions like Chase, Bank of America, and Wells Fargo all are coming out with their
own offerings.
And while landlords are less regulated than mortgage lenders, they also might be able
to extend you more time or be a little more flexible on terms, but again, you need to ask.
Your next round of calls should be to your utility companies & insurance providers.
Many are offering to give their customers leeway to skip or delay payments.
As you work your way down your list of bills, you’ll finally get to your minimum loan
payments.
Thankfully, all federal student loan payments have been suspended by the recent stimulus
bill until september 30 and even private lenders are offering forbearance programs.
You should also reach out to your credit card companies and any other lenders on your list.
They’re all joining the “less people can pay us” party.
The one thing that most of these forms of relief have in common is that benefits are
not automatic.
You have to reach out and ask them for help.
Proactivity is the name of the game.
And even if they don’t let you skip a payment, they might have the power to not let it affect
your credit score.
That alone would be worth the call.
And if you already have cash set aside, or are expecting some in the form of, say, a
stimulus check from Uncle Sam you should keep that on hand to cover your expenses your income
can’t.
While it might be tempting to pay off debt or even invest with the recent stock-market
drop, cash is king in a crisis.
Even if your income is only somewhat hit, it’s best use is to plump up that emergency
fund a bit more.
Just in case Murphy’s law decides to show up.
And even with flexible payments and forbearance plans coming online, we see many folks considering
extreme measures.
Like taking on 5 figures of credit card debt, yanking from retirement or even ignoring bills
entirely.
Is there a time and a place to take these drastic steps?
Maybe.
But they should be an absolute last resort.
We definitely don’t recommend taking out credit cards or loans if you have cash you
can access: that’s exactly what it’s for!
You truly need to be living the “scorched earth” lifestyle in earnest before resorting
to those tools.
And if you’re in survival mode and debt is not an option, prioritize paying for your
basic food, utilities, and transportation you’d need to keep yourself employable.
If you still have leftover funds, move on to your housing costs, and minimum debt payments.
The main reason putting your utilities before your housing costs makes sense is that the
consequences set in more quickly than skipping a housing payment.
There’s no way to sugar-coat it.
It’s an especially scary time.
But it doesn’t have to be an unmitigated disaster.
Don’t allow panic or shame to take complete control.
You have the power to make a plan and reach out for help.
And that’s our Two Cents
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