The events of the past few weeks could easily derail the financial plans you’ve worked for years to build. You may be worried about volatile investments or health-care costs, or you may have lost your job or been furloughed. Now is a good time to review your finances to help stretch your money over the short-term, find emergency money that won’t jeopardize your long-term finances, and do what you can to stay on track to reach your financial goals. The following steps can help.
Reassess your regular expenses. The stay-at-home orders have provided a key opportunity to reassess your regular expenses and decide which ones are worthwhile and which you can do without. It’s a good time to review your budget and look for areas to cut back — whether you’re struggling financially now or just want to save more money for the future. Review your credit-card bill for automatic charges for apps, memberships, subscriptions and other services. Are you still using them, especially if you’re at home most of the time now? Are there charges you can do without? When you study your expenses carefully for a month or two — and look at the spending difference before and after the coronavirus closures — it may be easy to see ways to cut back that can help you in the future, too.
Turbocharge your emergency fund. These challenging financial times illustrate the importance of having an emergency fund. It’s a good idea to keep at least 3–6 months’ worth of expenses in a safe account that you can access easily, such as a money-market account. Many people who lost their jobs are depending on their emergency funds now — if they have them. But if you’re doing OK financially, consider setting aside some extra money for emergencies — whether it’s a portion of your tax refund or stimulus check, or savings from cutting back on your everyday expenses. It’s also a good time to contribute to accounts that can do double duty — such as a Roth IRA, which can grow tax-free for retirement but also provides access to your contributions without taxes or penalties at any time. If you have an eligible high-deductible health insurance policy (or had one in 2019) you can make tax-deductible contributions to a health savings account and withdraw the money tax-free for medical expenses anytime. You have until July 15, 2020, to contribute to an IRA and HSA for 2019 — see Savings Deadlines are Extended Because of the Coronavirus for more information.
Find out how to access extra cash in an emergency. If you’ve exhausted your emergency fund and still need more money to pay your bills, you have several options for accessing extra cash. Some have less of a long-term impact on your finances than others. Instead of charging emergency expenses on high-interest credit cards, consider some alternatives. First, find out if your financial institutions are offering any special deals because of the coronavirus financial challenges — such as payment deferrals, interest-rate reductions, longer grace periods for paying insurance premiums and other bills, or special low-interest loans or grants. Talk with your lenders about your options before you miss a payment.
You may have some additional sources of cash. If you have a permanent life insurance policy, you may be able to borrow from the cash value for any reason at any time. You pay interest on the loan, but there’s no repayment schedule. If you die before repaying the loan, the balance is subtracted from the death benefit. If you were thinking about refinancing your mortgage to take advantage of low interest rates, you may be able to do a cash-out financing and borrow some extra money (you may be able to borrow up to 80% of the home’s value, including the mortgage and extra cash). But make sure that the savings are large enough to make the closing costs and refinancing fees worthwhile, and keep in mind that your house is on the line if you can’t make your payments.
The Coronavirus Aid, Relief and Economic Security (CARES) Act lets people borrow or withdraw more money from their retirement-savings plans without penalty, which can be another source of emergency cash. But raiding those accounts can set back your retirement-savings goals. The CARES Act lets you withdraw up to $100,000 from your retirement plans without a 10% early-withdrawal penalty and gives you up to three years either to put the money back into the account or pay taxes on the withdrawal. If you have to tap your retirement savings, try to put the money back within the three years, so you’ll do less damage to your long-term financial plans.
Make the most of your employee benefits. If you are still working, try to make the most of any extra perks from your employer. If your employer matches your contributions to your 401(k) or HSA, try to contribute enough to get the full match (especially since some employers have said they plan on suspending 401(k) matches in the future, at least temporarily). Take advantage of this free money while you can. Also, some employers are reopening open enrollment for some benefits, such as disability insurance, now that more people are realizing the importance of this coverage. Your employer may also offer an employee assistance program that provides resources to help with caregiving, mental health or wellness programs, which might be particularly helpful right now.
Save money on health-care costs. If you lose your job, you have several options for continuing your health insurance. Compare the cost and coverage of continuing your employer’s insurance through COBRA (you’ll have the same coverage but your premiums will jump when you have to pay both the employer’s and the employee’s share of the premiums) or getting an individual policy on your state marketplace or Healthcare.gov. The individual policy may have different provider networks and coverage (and you’ll have to start your deductible period again), but you may get a subsidy to help pay the premiums based on your income. Single people can get a subsidy if their income is less than $49,960 in 2020, or $67,640 for couples, or $103,000 for a family of four. Go to Healthcare.gov or your state’s marketplace to find out more about your coverage options and estimate your subsidy.
Even if you haven’t lost your job, take advantage of extra ways to help lower your health-care costs. For example, many insurers are expanding coverage for telehealth and sometimes eliminating out-of-pocket costs for these virtual visits with doctors, or charging much less than visiting an urgent-care center, emergency room or doctor’s office. Telehealth has traditionally been used to help diagnose minor health issues, but more doctors are currently using them to meet with patients from their own homes and also to prescreen before recommending a coronavirus test. Telehealth access is also growing for behavioral health services, such as visits with a therapist or psychologist.
Take advantage of free (or low-cost) special opportunities for entertainment and education. A good way to free up some extra money in your budget is to take advantage of free resources for entertainment, both for yourself and your kids. Many educational and cultural organizations are offering special webcasts or classes for free (or low cost) specifically to teach or entertain families who are home during the coronavirus shutdown. The Metropolitan Opera and London’s National Theater are scheduling free streams of special performances. New York City Ballet’s digital spring season features a different ballet every few days. The National Park Service and many museums are offering virtual visits and webcams. Many libraries are providing free book downloads and other resources. Kahn Academy has expanded its free educational resources to help families whose kids are home from school, with daily schedules for students age 2–18. Many gyms and fitness centers are offering classes online. Airbnb, which had offered group experience trips throughout the world, has brought those programs online — you’ll join hosts and other participants in real time online (costs range from $0 to $30 or more).
Review where you stand on reaching your long-term goals. With so much volatility — both in the stock market and the job market — it’s a good time to give your retirement savings a check-up and see where you stand. If you don’t plan to retire for many years, you still have time to weather the market’s ups and downs. But it’s a good time to review your portfolio and make sure your investments still match your timeframe and risk tolerance. (See 6 Ways to Keep a Level Head During Stock Market Volatility). It’s also a good time to run your numbers through a retirement-savings calculator to see if you’re still on track to reach your goals or if you need to make some changes — such as saving more, cutting back on your retirement expenses, or delaying retirement if possible (or at least picking up some part-time work). Earning even a little extra money in retirement can make a difference — you won’t have to withdraw as much from your savings (especially in a volatile market), may even be able to save more, and the extra income could help you afford to delay taking Social Security benefits for a few years, which will increase your annual payouts for life. See Making Sure Your Assets Last in Retirement for more information.
Saturday Insurance Services, LLC (“Saturday” or “Saturday Insurance”) is a licensed, digital insurance advisor. All tools, quotes, and information provided by Saturday are for educational purposes only and based on the limited information, if any, provided by you. We urge you to consult with your financial and tax advisors before making any purchase decisions. All quotes and estimates are non-binding and are not to be construed as a guarantee you will be able to purchase insurance. Availability of insurance and final pricing is determined solely by our insurer partners and subject to their review and acceptance of a completed application. All product guarantees are subject to the claims-paying ability of your insurer.