At this point it should come as news to no one that we are in the middle of the worst pandemic since the Spanish Flu of 1918. During the COVID-19 pandemic, protecting your physical and mental health is critical. Social distancing, wearing face masks, and getting fresh air are some of the methods we’re all familiar with for maintaining physical and mental health, but what about preserving your financial health? During this time of heightened uncertainty there are actionable plays for taking care and ensuring you protect your financial health during COVID-19.
Evaluating, and Re-Evaluating, Expenses
Let’s first take a look at this side of the equation: expenses. There’s a significant chance that some part of your life has been altered by the pandemic. Perhaps you are working from home, have had your hours reduced, or have been furloughed from your job. You may not be going out to eat as much, have skipped out on the gym, and maybe are not participating in your normal extracurricular activities. You’ve changed your behavior, but have you compared that change to your spending habits?
Start with the obvious, and make sure you cut those extra services you aren’t using. Now is a great time to take a look at your memberships and subscriptions to make sure you’re getting the full value of what you’re paying for. And if not, cut it! You will be amazed at how much a couple of these unnoticed subscriptions add up. There are even online tools you can use to help identify and aggregate your recurring subscription payments. This is generally a good practice to pick up every few months as your interests may change slightly over time.
After thinking of the obvious expenses, take a step further to evaluate the indirect changes to your routine. Some of these may take a bit more digging to get to realized savings, but they can certainly be worth your time. For example, if you have a travel credit card, are you reaping the full benefits of this enough to constitute paying the annual fee? Consider cancelling or downgrading the card, but not before taking a look to see how some of the cardmember benefits may have changed. Some credit card issuers have already acted on this shift and have started to offer additional services such as streaming and cell phone reimbursements, so it will be important to evaluate the updated benefits before making a decision. While on that subject, it could even be a good time to consider a new card that is weighted toward your newly formed habits.
Another avenue could be your car insurance. With less cars on the road and thus less accidents to insure, some insurers have already taken action and refunded or reduced the amount they are charging their customers. Now is a perfect time to evaluate this and possibly consider shopping around for cheaper rates. It could be worth your time to grab a couple of quotes and even take it to your current insurer.
Take advantage of low interest rates
Since the start of the pandemic in March 2020, interest rates have dropped back to bottom-floor lows. While this may hinder our ability to save and invest at better rates, it can certainly help when considering the other side of the balance sheet! If you have a loan, whether it be mortgage, auto, personal, or credit card debt, now is a perfect time to re-finance. Paying down debt is an investment in your net worth, and lowering your interest rate is a key first step to make sure you’re paying off as much principal as possible with your payments.
Start with the loan or debt carrying the highest interest and work your way down from there. When you think about it, this is equivalent to picking an investment with the highest return, and it can be the best place to put your money if the interest rate on your loan is higher than what you could return in an appreciable investment. After all, paying down debt earns a guaranteed after tax risk-free return equal to the interest rate on that loan and can be a critical move to freeing yourself up financially.
Use this time to build your nest egg
We suggest to all of our followers to keep a six-month “emergency fund” for times of hardship such as, say, a pandemic. There is a chance you have already begun to recognize the need for this over the past few months. An emergency fund helps you in more ways than you may realize. Liquidity is extremely crucial, as it keeps your personal finance engine running like a well-oiled machine. If you run low on cash due to an unforeseen circumstance and start having to miss a payment here or there, it can start to cost you in the form of piled up interest charges and fees. This is why we suggest keeping this emergency fund around.
Unfortunately, some of the methods we would normally suggest for building and maintaining an emergency fund may not be as effective in the current macroeconomic state. High yield savings accounts and CD rates are currently offering much less than the upwards of 2.05% they were before the interest rates were slashed, but that does not diminish the importance of the underlying objective: build your nest egg. This is where you’ll need to decide which vehicle is most appropriate, based on your risk tolerance. With the economy seemingly in a state of limbo, it will be crucially important to consider fundamental investing and mitigating your risk. We’ve included some of these tips in other articles on our Resources page.
Stop and smell the roses
With the uncertainty about the future, there has been no better time to pause and reflect on what is important in life. Take the appropriate action to make sure you are content, both physically and mentally. After that can come the focus on taking care of yourself for the long term, and this is where protecting yourself financially will come in handy. Use this time to make sure you’re protecting your financial health during COVID-19.