The economic hardships caused by the coronavirus pandemic continue to grow, hurting business owners and their workers.
More than 60 percent of Americans are worried about their finances because of the coronavirus, according to a survey conducted by The Motley Fool last week.
We’ve made it through global crises before, but there’s no playbook for this nasty virus. And that fear of the unknown — how bad it will get before we turn the corner — is creating enormous anxiety for millions of Americans.
“We’ll see a couple of quarters that are going to be horrific in terms of the contraction of American business,” said David Gardner, co-founder and co-chairman of The Motley Fool in Alexandria, Virginia. “But this, too, shall pass, and I think we can say that with confidence. Coronavirus has created this — and hopefully it has a short shelf life.”
We asked personal finance experts across the country for their advice on how to deal with the economic downturn. Here’s how they responded to our questions.
Q: Should I worry about the money in my bank or credit union account?
A: Relax. Any money you have in federally insured bank and credit union accounts is perfectly safe.
“There is no need to worry about financial institutions running out of money,” said Greg McBride, chief financial analyst at Bankrate.com, a consumer financial services company based in New York City. “Banks and credit unions [in the U.S.] are extremely well capitalized — more so than anywhere else in the world — and the Federal Reserve has made available as much cash as needed to satisfy customer demands.”
The safest place for your money is in the bank, McBride explained. Cash won’t do you much good when you’re stuck at home.
“You’ll need the money in your bank account, not your pocketbook, in order to pay bills online, have payments auto-drafted from your account, to use your debit card and to pay the credit card bill when it comes,” he said.
Q: The IRS moved the tax deadline to July 15, so should I file now or wait?
A: If you owe the IRS money, there’s no need to rush. Keeping cash on hand is critical right now for many of us. For those expecting a refund, why wait?
“If you’ve lost your job and you’re expecting a tax refund, it makes sense to file your tax return as soon as possible, so you can get that money in your bank account to cover any upcoming or urgent bills,” said Andrea Coombes, tax specialist at NerdWallet in San Francisco.
If your adjusted gross income (AGI) is less than $69,000, head to the IRS website and learn how you can file for free. File electronically and opt for direct deposit, and the IRS says you should have your money in about three weeks.
A tip for anyone who is still working and who received or is expecting a big tax refund this year: Consider filling out a new W-4 form with your employer to have less money withheld from each paycheck.
“You can make changes to your W-4 any time throughout the year, and those adjustments help make sure you don’t have too much or too little being withheld,” Coombes said. “For example, if you received a $3,000 tax refund this year, that’s $250 you could have had each and every month last year to pay down debt or save for the future.”
Q: What should I do with my 401(k) or other retirement accounts?
A: It’s scary to look at retirement account statements right now. Don’t let fear encourage you to make rash decisions. The average investor underperforms the market over time by making emotional decisions, such as moving to cash when they panic.
“My own portfolio has dropped by about 30 percent, just like the market has, and nobody likes seeing that,” said Matthew Frankel, a certified financial planner based in South Carolina who writes for The Motley Fool. “My wife is definitely freaked out, but stocks rebound over time and any period measured in several decades in our history has always produced positive performance.”
Staying the course, even in a bear market, is part of being a long-term investor, Frankel said. That’s why he advises people who are still employed to continue making contributions to their 401(k) accounts.
“We all know that the main goal of investing is to buy low and sell higher, but by stopping the flow of money into your account, you’re literally doing the opposite of buying low,” Frankel explained. “So, if anything, it could be a good time to contribute more because not only are you buying low and setting yourself up for the future — if you have a longer time frame — but you’re also getting a nice tax break since anything you contribute to a pretax retirement account, like most 401(k)s, is not included in your taxable income for the year.”
Q: I’m broke. Is it OK just to pay the minimum on my credit cards?
A: Making the minimum payment extends the loan and increases the cost. That’s why personal finance experts always encourage cardholders to pay more than the minimum. But these are not normal times. So, if you can only afford to pay the minimum right now, don’t sweat it.
“Hopefully, this will be a temporary glitch and the interest that you might accrue because you make that minimum payment won't be too debilitating,” said Matt Schulz, chief credit analyst at LendingTree, an online loan marketplace in Charlotte, North Carolina. “So, if it gives you peace of mind, it's okay to consider just making that minimum payment right now.”
If you can’t even afford the minimum amount, talk to your credit card issuer. They have programs in place to extend payment deadlines and lower minimum payments. You might also be able to get a higher credit limit to get you through this crisis. But you have to call and ask for help.
Non-profit credit counselors are also available to help by phone. The initial consultation is free.
Moving the balance to a zero-percent-interest balance transfer credit card will stop the interest from accruing for a year or more. Many balance transfer cards also offer zero-percent-interest on new purchases for up to 18 months.
“Even if you don’t have a lot of debt right now, this type of zero-percent card can be really helpful at a time like this,” Schulz explained.
Most balance transfer cards charge a fee — the average is about 3%, according to WalletHub, a personal finance website based in Washington, D.C. But there are at least a half dozen top-rated transfer cards that don’t have a transfer fee.
Q: I’m still employed, thankfully. Is there anything I should be doing right now?
A: Your goal is to have access to as much cash as you can. If you still have a job, cut expenses and see how much you can add to your emergency fund. In a worst-case scenario, you may need to tap it.
“Now is the time to buckle down and cut back,” said Julie Prince, a wealth management advisor at Northwestern Mutual. “Determine what is optional and what is must-have — and do away with those optional things as best you can.”
The goal is to have a rainy-day fund that can cover essential needs for at least six months. A good place to park that money is an online savings account. The best accounts are paying 1.6 to 1.8 percent APY right now.
Homeowners who are short on savings but have a lot of equity might consider applying for a Home Equity Line of Credit (HELOC). To qualify, someone in the family will need to be working.
“If you might need access to fast cash, consider getting a home equity line of credit while you still have a job,” said Ilyce Glink, CEO of Best Money Moves, a mobile financial services company in Chicago. “If you lose your job, it will be extremely difficult, if not impossible, to get a HELOC, so you've got to think ahead. You may even want to withdraw some of that credit line and keep the money in your savings account, just in case.”
Shop around for the best deal, interest rates vary and so do fees. In some cases, you may be able to deduct the interest you pay on that loan.
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