Try Not to Panic, and 8 Other Practical Financial Tips
The coronavirus crisis has all of us worried about money.
We’re all locked in our homes, fearing for our health and our economy, which has been profoundly decimated. Many industries are at complete standstills (service, travel, retail—we miss you). Besides fears of contracting COVID-19, a whole lot of us are terrified about our financial wellbeing.
Millions are out of work, with American unemployment numbers reaching levels nearing the Great Depression, while contractors, the self-employed and those who run small businesses have seen their incomes evaporate. It’s a tragically common time to be on the dole, and many are joining those ranks every day.
But there will be innovations and new economies that emerge from this horrible time in history, while working from home appears to be the new way of life for the foreseeable future. As we all reel from the dizzying fears, experts have a few pointers to protect your financial health, plan ahead, and keep your sanity as we weather this stunning attack on our normal way of life.
Should I withdraw cash?
Financial adviser David Brunelle, managing director of North Pointe Wealth Management in Worcester, says no. Deposits in the bank, up to $250,000, remain safe and insured by the FDIC. FDIC insurance is backed by the full faith and credit of the United States government.
“I am not worried about FDIC insurance holding up,” Brunelle says.
Gun sales are up—should I buy one?
Former Boston Police Commissioner Ed Davis, a security expert, says no—let the police do their job.
“The possibility of civil unrest is a real thing. As this goes longer, the possibility of rioting and looting goes up,” Davis, president and CEO of global security firm The Ed Davis Company, said. “But taking up arms, that would make the situation worse. If you have a problem, you can call for help. Arming yourself is an extreme step that I don’t think we’ve come near. Cooler heads should prevail at this time.”
What should I do about my 401K and other investments?
Listen to your financial planner and don’t panic sell. Investors should be careful not to let emotion dictate their investment decisions.
“The first thing all investors should do is make sure their investment allocations match their own objectives,” Brunelle says. “A worker nearing retirement should have a much more balanced allocation to stocks and fixed income than a person early in their career.”
What should I do with my stimulus check?
For those still working and getting paid, the checks are bonuses, but for those out of work, they’re a small lifeline, albeit not enough for most to even pay a single month’s rent. Either way, socking away anything possible right now is a smart move.
“Everyone needs to make sure they add to their emergency funds,” Brunelle advises. “The government wants everyone to go out and spend it. But for people living paycheck to paycheck, this is a scary time for them. I’d be saving. In cash, in the bank.”
How can I protect my savings?
Treasury bills are the safest bet. If interest rates keep plummeting, banks could possibly see negative interest, meaning it would cost you to keep money in the bank.
“It’s never happened in the U.S., but a bank could charge a quarter of a percent or some amount to hold your money,” Brunelle says. “It’s not on the table right now, but it’s happened in other countries.”
Is now a good time to buy life insurance?
If you don’t have it, then no, probably not. Life insurance companies are notoriously risk-averse and anyone who has traveled in the last six months will face intense scrutiny, while anyone getting a policy now will almost certainly pay more than pre-COVID-19. Also, getting required medical exams right now is a challenge, since in-home medical exams are banned due to social distancing requirements. And you could be rejected if you have had contact with anyone who has tested positive.
How can I cut my expenses?
There are many relief packages in the pipeline at the state and federal level, including rent and mortgage reprieves. Many utilities, car loan companies, credit cards, banks and other creditors are allowing payment deferrals. Call them to work out a plan, rather than just defaulting.
“Be proactive about it. It’s much better to have the conversation up front than to just not send a check,” Brunelle says. “Any debt payments that people have, they should call. It makes sense for them to work with the borrower.”
Should I make a will?
Family law attorney Larry Army of Army & Roche says “100 percent.”
“Everyone should have a will, especially now. It gives you peace of mind,” Army says.
For parents of kids under 18, a will appoints a guardian, while for those without children, a will ensures assets go where you want them to go. Wills and estate planning also can cut estate taxes for your loved ones.
Will our financial system survive?
The federal government learned important lessons in the 2008 crash and has taken swift steps this time around.
The feds have been aggressive in allowing banks to renegotiate terms of business and consumer loans without penalty to the lending institutions. Also, the swift passage of stimulus and other aid packages will help stop the hemorrhaging, although there will be long-term debt to be addressed long after the crisis is over.
“One of the reasons they were able to act so quickly is there were no real villains in this issue. In 2008, there were bad actors,” Brunelle says. “Because everyone is in this through no fault of their own, it’s been a lot easier to inject stimulus…In 2008, it took them eight months to find things that would be helpful. They went into that playbook very early and very quickly in this crisis.”
He sounded one final note of caution: There’s been a “huge uptick” in online fraud and cyber phishing scams.
“People should be extra vigilant in not falling victim to any fraud,” he said. “Nothing legitimate will make you put your information in online.”