A Guide to Managing Personal Finances During the COVID-19 Crisis

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Being a wise money manager can be challenging in “normal” times. Now, the economic uncertainty of the COVID-19 crisis has disrupted the personal finances of many people. If you’re one of them, you may have questions about how to manage your money wisely.

We created this guide to cut through the confusion and give you answers to common financial questions during the coronavirus outbreak. Use these tips to be a better money manager, whether you have a stable income or are dealing with financial hardship.

What’s the best way to budget money during the coronavirus?

If your paycheck or business income dried up due to a layoff, furlough, reduction in hours or lack of business revenue, you need a realistic crisis budget. It’s critical to take stock of your savings, income sources and ongoing expenses so you can spend less than you make.

If you’re new to budgeting, it’s easy to create a simple, old-school plan on paper. Another option is to manually enter your financial transactions in a spreadsheet, such as Excel, Google Sheets or Airtable.

If you’re more tech-savvy, try a budget tracker included in a personal finance program, such as Mint, Quicken or YNAB (You Need a Budget). None of these money management programs require you to know anything about bookkeeping or accounting.

Once you sync a money program to your financial accounts, such as your checking and credit cards, they enter your transactions and categorize them automatically. That saves time and allows you to create and adjust your budget as needed.

How do I know if I’m overspending for my financial situation?

If you use a personal finance program, you can compare your spending to your budgeted amounts over different periods. By running a quick report, you can see if your spending in a category exceeds the budget you set. If so, you can cut back your spending or reallocate category amounts for a more realistic goal.

One way to budget is to set a maximum dollar amount or percentage of income for each of your spending categories, such as food, transportation, debt and savings. Another approach is to use the 50/30/20 method. With this strategy, you lump a variety of expenses into one of three categories: fixed expenses, variable expenses, and savings.

The goal for a 50/30/20 budget is to spend 50 percent of your take-home pay on necessities and fixed costs, such as housing, food, insurance and debt payments. You spend 30 percent on variable expenses, such as entertainment and clothes, which are nice to have but not essential. You spend the remaining 20 percent on financial goals, such as emergency savings and retirement.

What should I do about my credit card debt during the pandemic?

If you’ve accumulated credit card debt and are experiencing financial hardship, look at your card terms. If you must carry a balance, make charges on your lowest rate card, so you pay as little interest as possible.

Also, consider applying for a balance transfer credit card with no interest on new purchases or amounts you transfer from another account. Card offers vary but might give you up to 18 or 21 months with 0% APR to save money until your financial situation improves.

How can I get help paying my bills during the COVID-19 crisis?

If you have trouble meeting expenses, speak to your lenders, credit card issuers, insurers, and utility companies to find out if they can give you relief. For example, many mortgage lenders are offering a 60- or 90-day forbearance if you request it.

You might also qualify for a mortgage refinance or a modification, which would reduce your monthly payments. Mortgage rates are at historic lows, so take advantage of the opportunity to pay less or to convert an adjustable-rate mortgage (ARM) into a fixed-rate product.

If you have federal student loans, many types are in automatic forbearance until September 30, 2020. This relief allows you to skip payments without interest accruing or black marks getting added to your credit reports. You can use the money to pay bills or higher-rate debts instead. Ask your loan servicer about affordable student loan repayment options based on your income when payments resume in October.

Contact your utility companies about qualifying for low-income assistance programs to reduce or temporarily eliminate your monthly bills. Be sure to shop for lower rates on products and services you can’t go without, such as the internet, phone, car insurance, home insurance and renters insurance.

Should I buy a home during the coronavirus outbreak?

If you’ve been dreaming about buying a home and your finances are in good shape, becoming a homeowner this year might be a wise move. The rate for a 30-year fixed-rate mortgage is at historic lows. In many parts of the country, owning a home costs less per month than renting a similar property.

In addition to low-rate mortgages, there may be bargains on the market, depending on where you want to live. If a seller is uncertain about their financial future or needs to relocate, they may give you a good deal.

Be sure that your income is stable and that you can stay in a home for at least five years before becoming a homeowner. If you’re at all worried about getting laid off or having less income from your business, it’s wise to buy a home that’s under your budget.

In addition to a mortgage payment, homeowners have many other expenses, including property taxes, homeowners insurance, applicable association fees and ongoing maintenance. Take a hard look at your income, expenses and savings to make sure you have enough cash for a down payment and a healthy emergency fund, such as three to six months’ worth of your living expenses.

Your first step in becoming a homeowner is getting preapproved for a mortgage. The amount you can borrow, the interest rate, and your down payment depend on a variety of factors, including your credit and income stability. Due to the economic crisis, lenders are tightening standards. In other words, you may need better credit and more down payment money than was typical before the pandemic.

Is it a good idea to keep my emergency savings in the bank?

Having to deal with a potential crisis, such as the coronavirus, is why everyone needs a cash reserve. Always keep your emergency fund in an FDIC-insured bank or high-yield savings or an NCUA-insured credit union savings account, so it stays completely safe and accessible 24/7.

Both FDIC and NCUA coverages protect you against loss up to $250,000 per depositor, per insured institution, per ownership category (such as single or joint accounts). The coverage includes your principal balance plus any interest accrued.

Using an FDIC-insured short-term CD may be a good option if you have plenty of cash above your target emergency fund. CDs give you a guaranteed return rate, but they don’t allow you to access your money during a term, such as three or six months.

In general, the shorter the term, the less a CD pays. Only put your emergency money in a CD if it pays more than your savings account.

Should I continue investing money for retirement during the pandemic?

With so much economic uncertainty, the stock market is likely to continue giving investors a rollercoaster ride. Instead of focusing on the day-to-day volatility, look at the big picture, and remember your financial goals.

Over the long-term, the financial markets have gone up. If you have one or more goals that are more than five years away, such as retirement or buying a home, keep investing.

A good rule of thumb is to invest a minimum of 10 to 15 percent of your gross income for retirement every month, no matter what’s going on with the stock market. If your budget is tight, reducing the amount you invest is better than stopping altogether.

Maintaining the habit of contributing to a retirement account, such as a workplace 401(k) or 403(b), is one of the best ways to create a secure financial future. If your employer offers any amount of retirement matching, contribute enough to max out that benefit.

If you don’t have a job that offers a retirement plan or are self-employed, look into other options. Nearly everyone qualifies for an IRA (Individual Retirement Account). If you work for yourself, take advantage of retirement accounts for the self-employed, such as a SEP-IRA or a solo 401(k).

If you haven’t started investing, don’t let the pandemic stop you. The sooner you get started, the more time your money has to grow. As you earn interest, it gains even more interest, which is known as compounding. An investor who starts early can contribute less and end up with significantly more money than an investor who gets a late start.

Be sure that you won’t need to tap your retirement account before the official retirement age of 59½. Taking early withdrawals typically comes with a 10 percent penalty in addition to income tax on any amounts that weren’t previously taxed.