WHAT SHOULD YOU DO FINANCIALLY TO GET THROUGH THE CORONAVIRUS COVID-19 PANDEMIC?
Regardless of the current or coming health effects of COVID-19 on you or your family, the pandemic has affected and will continue to affect household finances for months and possibly a year or more. Having a plan, prioritizing spending, and using resources efficiently will be key to your financial stability.
ECONOMIC IMPACT OF COVID-19
As of the publication of this post, COVID-19 is having a massive effect on the US Economy, even if it is not felt yet on everyone’s household budgets. From the cancellation of sporting events and religious gathers to the closing of travel between the US and other countries, international trade is being severely disrupted.
While we pride ourselves in America for our rugged independent natures, sometimes even to excessive isolationism, we are going to see over the next few months how interconnected we are economical to countries around the world. As the importation of goods from Europe comes to a practical standstill and products made in Asia disappear from retail shelves every day, Americans will have fewer choices for purchasing their consumer goods.
While this seems like a boon to American Made brands, fewer consumer goods being sold means fewer purchases, which means lower business profits, which in turn means less income to hire and pay employees. With this basic understanding of the chain reaction the leads from lower trade to smaller or fewer paychecks, you can generally expect a slowdown in the US economy to last more than a month or two.
Because the US and the world’s general economic situation was overall quite healthy before the novel coronavirus outbreak in the fall of 2019, recovery should eventually be swift and complete. However, you should also expect the fallout from the pandemic to affect you directly and personally in your wallet.
HOUSEHOLD IMPACT OF COVID-19
Individuals who work for businesses heavily involved in international trade will feel the impact most directly, with loss of bonus and other incentive pay potentially followed by furloughs and possibly even temporary or permanent job loss. This is a worst-case scenario, of course, but it is certainly possible given the current state of borderline panic coming from the government, business, and other societal sources.
If the economic contraction turns into a longer-term economic situation, a recession might mean a wider spread of job loss and lower wages. However, given the broader stability in the economy before the pandemic, long-term concerns seem less likely to affect the country.
EVENT CANCELLATIONS AND COVID-19
With recent announcements from the NCAA, the NBA, the NHL, and MLB about canceling and postponing some of the most popular sporting events of the year, fans of the games are not surprisingly disappointed. However, such drastic measures will have a direct negative effect on many more people than just the employees at the venues or of the teams. Employees of the companies that depend upon these events will feel the economic contraction. From vendors and retail shops nearby to hotel, and airline companies, to many in the gig economy such as Uber and Lyft drivers, no events will mean no bump in income or no income at all.
SCHOOL CLOSURES AND COVID-19
As school district boards and principles grapple with the concern over the spread of COVID-19 among students, several have already closed their doors and chosen, like many schools in China, to hold classes virtually where possible. Besides the loss of learning and social interaction so critical to our children’s long-term health, closing schools may have an unfortunately devastating impact on many households. The vast majority of American households either depend upon two incomes or are run by single parents with one income source. If children are no longer sent off to school while Moms and Dads head to work, parents will be left to either pay for more daycare (if they dare) or take personal time off to deal with children stuck at home.
Not only does this mean parents are using some or even all (and then some) of their paid time off, but down the road, it means those same parents will have less time off to travel and spend money fueling the tourist-driven sections of our economy. The silver lining? If things get really bad, watch later this summer and fall for great deals on theme park tickets, resorts, and travel agencies.
TRAVEL BANS AND COVID-19
A temporary travel ban announced March 11th by the president may seem to many a mere inconvenience to their family vacations. Unfortunately, it will also hamper the work of many businesses that rely on the exchange of knowledge and information through in-person business trips. Additionally, there are bound to be many school field trips and college research trips canceled or, at the very least, postponed.
QUARANTINES AND COVID-19
For those who become ill with COVID-19 and experience the difficulties of quarantine, loss of paid time off is just one concern. For small business owners including those who earn no income unless they are working themselves (think many physicians, attorneys, dentists, accountants), not to mention anyone who depends upon multiple side hustles to pay for rent and groceries, quarantine can become a financial nightmare. Of note, Uber announced that it will compensate its drivers who are placed under COVID-19 quarantine. Other delivery companies appear to be following suit.
COVID-19 and Scams
Inevitably, natural disasters and national crises will spawn a wave of scams and fraudulent services. It does not take much imagination to see such activities surfacing already such as the following:
Beware of snake oil salesmen peddling “secret” cures and vaccinations to anyone desperate enough to pay for them. Such remedies will come in the form of pills, herbal formulae, and non-traditional treatments. Although you might want to justify spending money on outlandish claims in the “hopes” of it being helpful, but hope and fear are polar opposites. Hope leads to positive changes while fear leads to negative choices. Pay attention to the irrational claims you hear or read as well as to your gut instincts.
Avoid becoming the victim of unethical activities that pray on your fears and our collective panic. We have already seen this in play in our rush to clear shelves of toilet paper, but if you find an “opportunity” to buy such supplies online at exorbitant prices, do yourself and your bank account a favor and steel yourself against overreacting.
Worse yet are the outright fraudsters who will offer to sell “emergency equipment” and supplies for some supposed doomsday scenario, peddling generators, hazardous materials suits, filtered facemasks, goggles, and surgical gloves, and coronavirus first aid kits. Most of these items will never be required or used. As for goggles, gloves, and first aid kits, they will be no different in a “Coronavirus Kit” than what you would find in the first aid kit you may already have in your bathroom, with the exception of the ridiculous price. Such excessive pricing can be termed profiteering, and you do not want to fall victim to it just because of fear and panic.
BUDGETING FOR COVID-19 DIRECT IMPACTS
Most of the direct impact on American households will be relatively limited and temporary in-scope. As seen very clearly on the news and social media, crazed runs on everything from hand sanitizer to even toilet paper may seem like a good idea for many households, but for those who are not in the financial position to buy in bulk, this leaves them with few good options. After all, how comfortable are most neighbors knocking at the door and asking for a roll of toilet paper?
While many may think that an emergency savings fund is perfect for purchasing supplies in this sort of situation, you would do well to remember that emergency funds are for times of no income. That includes unemployment and missing work due to emergency medical crises. Until either of those situations arise in your household, it is a good idea to sit tight and leave your emergency savings alone.
As for stocking up on needed supplies, the best time to do so occurs before the panic sets in. Once consumers begin purchasing irrationally, you may be faced with either empty shelves or exorbitant prices. Learn a lesson from this experience and buy an extra can or two of soup, an extra package of bottled water, or even an extra package of toilet paper when you do your normal shopping in the future to stock up slowly.
As the pandemic reaches into all 50 states, and into most communities, having a plan for spending your resources wisely will benefit you today and into the future. If you do not have a spending plan (aka budget) for your household, now is certainly a better time than later to put one together.
A budget is simply a plan on where you would like your money to go. To prepare for potential health issues and medical expenses, it would be wise to divert some discretionary spending from activities like dining out, going to the movies, vacations, and even subscription services, to an emergency savings fund for medical-related expenses.
Prioritize where you would like your money to go. Typically, this includes housing and utilities, food, transportation, and communications, and some clothing. While I am not a proponent of reactionary finances, meaning that I do not believe households should go into financial lockdown because of this virus pandemic, a household should always consider, and even reconsider, their priorities. In times of crisis, what is most important to us comes into clearer focus. Ask yourself if your spending money is going to the most important priorities in your life.
COVID-19 AND DEBT
Do not discount the continued importance of paying down your debt balances consistently and paying them on time every month. COVID-19 will not be the end of society as we know it, but if you stop making payments to your creditors, you could put yourself into a financial hole that will take years or even decades to dig out of.
HOUSEHOLD SAVINGS AND COVID-19
Throughout this pandemic, most households should continue to contribute to their savings funds so long as there is income in the home. Do not max out your income and credit cards because you are worried about a run on toilet paper. Do not go online to stock up on a year supply of hand sanitizer. Instead, follow the guidelines from the CDC while continuing to contribute regularly to your emergency savings fund as well as to funds for your short-term goals.
In the end, while COVID-19 is already causing temporary disruptions to our entire society and even the unfortunate death of many of our co-citizens, it will be quite possible in 20 years that we will look back on 2020 not as the year of COVID-19 but as the year of the Great Toilet Paper Panic.
Should I stop investing in the stock market? Consider what Warren Buffett did when the stock market plunged in 2007, 2008, and 2009. Instead of selling stocks in panic or staying away from the stock market, he jumped in feet first. The stock market will rebound. Is now not the best time to take advantage of other people’s panicking? Certainly, you would at the very least be wise NOT to cancel any automatic monthly investments through your 401(k) or IRA.
Should I stock up on supplies in case of quarantine? Nobody likes the thought of being quarantined for days, let alone for weeks. Look in your cupboard for canned foods and supplies you could use in case of such an emergency. Before you head to the grocery store to empty the shelves, remember that current quarantines are just two weeks, not two months. In a pinch, you will likely have a friend, family member or neighbor who could do your shopping for you, not to mention your option of ordering groceries online.