In light of the Covid-19 crisis, I’ve created a list of things to consider when it comes to your personal finances. This is not an exhaustive list and resources, circumstances and strategy seem to be changing almost daily. Regardless, I hope this will give you practical and actionable ideas to help you during these unpredictable times.
I’ve tried to focus on strategies and tips I have not seen widely covered elsewhere (such as the tax extension and stimulus money etc). Some points are relatively straight forward. Others are involved and may need deeper analysis or professional guidance. The information is in no particular order and is meant to be scanned so that you can quickly assess which items are relevant to you and hone in on those.
- Reduce your car insurance premiums: it is likely that your mileage has decreased significantly. Therefore, you are likely eligible for a reduced premium. Contact your car insurance carrier to put this in place.
- Re-address your income and expenses. For nearly all of us there have been shifts and understanding where your money is going is helpful. For some this may mean a savings opportunity. For example, if you had money budgeted for travel that money is not being spent. Or, perhaps, you were paying for child care but may no longer have that expense. I recommend setting up automated savings so that money is not “hanging out” in your checking account. For others this may mean necessary cuts to all but essential expenses due to reduced or loss of income. If that is the case, you may be able to delay payment of your mortgage rent or other bills without penalty. Reach out to lenders and document all phone conversations.
- Create a contingency cash flow plan. In other words, come up with a plan for how expenses would be paid if you have a job loss. For example, pulling from your emergency fund. Taking out a margin loan or drawing from retirement accounts (with the aim of replenishing them when employment resumes.
- Related to the point above, if you are concerned you will need money this year and are eligible to contribute to a retirement account (401(k), 403(b) etc) you could make contributions and keep that money in cash or cash equivalents. In 2020 there are no penalties for taking a withdrawal prematurely from retirement accounts, as long as you were affected by the Covid-19 crisis, and you will still receive the tax benefit of making contributions. Additionally, you have the option to return the money in the account over an extended period.
- If this is a low income year then a Roth conversion or partial Roth conversion may be an effective strategy. Depending on your income and the amount converted this could mean substantial future tax savings.
- Current market conditions create the opportunity to tax loss harvest for some people. This means you can “clean up” your investments while minimizing the tax consequences of doing so.
- Make adjustments to investment contributions to your long-term retirement accounts. For my clients this means sticking with the same long-term / slow and steady philosophy and making adjustments so that we buy more stocks / equities when those investments are under represented in comparison to bond / fixed income holdings.
- Similar to the point above the market downturn is an opportunity to rebalance your portfolio. This is jargon for “buy low and sell high” in a systematic way.
- Establish or revisit your estate planning documents (this includes wills, trusts and powers of attorney). Consider creating medical directives which are documents that state how you would like to be cared for and what end of live measures you do or don’t desire in a case were you are incapacitated and unable to communicate your wishes. If you already have these documents in place review them to make sure they are still in line with your current intentions.
- Organize all financial documents as well as other important documents and possessions. The All Together Notebook is a comprehensive organizational tool.
- Consider refinancing your home. You may be able to get a more competitive interest rate and lower your housing costs.
- Payment of student loans: the recent CARES ACT has suspended payments of student loans through September 30th 2020. If you are on track for Public Student Loan Forgiveness (PSLF) then it is critical that you do not make payments during this time. For others, you may want to make payments so that you are staying on track with plans to be debt free.
- Recertification for Income Based Repayment (IBR) plans for federal student loans; there are strategies around the timing of tax filing and loan recertification for income based repayment plans to consider. If you had a meaningful increase or decrease in income between 2018 and 2019 this can come into play.
When it comes to your personal finances, now is an important time to take a financial inventory and focus on the things you can control (even when so many things are out of our control). My aim is that this list gives you a starting point for decision making and taking action that will help you improve your situation.
Image courtesy of: Warton School of Business