COVID-19 Financial Survival Guide

The markets are in turmoil and economic forecasts predict an unprecedented global recession. No, it’s not 2008 again, but with memories of the Great Recession still fresh, fear towards the impending financial crisis may be intensified. The daily anxiety feels all too real, amplified by the international COVID-19 pandemic. In times of uncertainty, how can you ensure you’ll make it through?

These are very strange times we are living in. Who would have thought just a few months ago that the country would be shut down and we’d all be afraid to go to the grocery store. After advising clients for nearly 25 years I thought I had seen it all, but then COVID-19 comes along.

Now is not the time to bury your head in the sand. Unprecedented times call for immediate action. I’ve put together a free book titled COVID-19 Financial Survival Guide that may help. Here are several unconventional tips from the book that may help you survive and prosper:

Do Not Pay Off Credit Cards

You read that correctly. Do not pay off credit cards, or for that matter, home equity lines of credit, student loans, or other debts. Pay just the minimum amount per month. I know it would feel great to have a zero balance, and it might even seem like the safe thing to do, but it’s not. Strangely, the safe thing is to keep your debt right where it is and to take your cash and save it. Why? Because cash is king.

Would you rather have no debt and no cash to pay rent and buy food, or would you rather have debt and some cash to survive? That’s why you should not get overzealous and try to pay down your debt right now. Under normal circumstances, paying down your debt is a great strategy. But like I’ve said, we’re not in normal mode anymore.

The quickest way to go from good to bad is to lose your job or be furloughed. The minute your income stops you have a problem. With companies closed or downsizing and unemployment skyrocketing, now is the time to have a cash cushion.

If you have an interest-only loan but have also been making principal payments, stop. Just pay the interest for now. When things improve and there is more stability, you can start paying down the principal again.

If you’re paying down school debt, look at the rules of your loan. The CARES Act has automatically suspended payments for federally-held student loans through September 30, 2020. If you have a private student loan and need assistance, it’s critical you contact your provider directly to learn about forbearance options.

Bottom line, hoard cash by just making the minimum payments on your debt.

Join the New “Green Movement”

It's all about conservation, not of the environment, but of your cash. If you want to reduce your expenses and save a little more each month, use the PERK System (Postpone, Eliminate, Reduce, Keep).

The PERK System is easy and most people I work with have been able to reduce their expenses by several hundred dollars per month in a matter of minutes. The PERK System consists of just two steps:

Step 1

List all of your expenses individually and then add them together. Include recurring monthly expenses (e.g., rent) as well as those that occur less frequently (e.g., homeowner’s insurance).

Step 2

Now, next to each expense, write either P for Postpone, E for Eliminate, R for Reduce, or K for Keep:

Postpone - These are expenses that you can put off for a period of time. For example, a house remodel project, vacation, or new car purchase.  

Eliminate - These are expenses you can completely eliminate such as a gym membership you never use, the video streaming service you never watch, or subscriptions you’ve forgotten about.

Reduce - Any expense that you are willing to cut back on qualifies for Reduce. For example, if you order dinner every night but are open to cooking a few times a week, mark the expense Reduce. In this case, you are reducing the frequency of the expense.

Keep - Many fixed expenses such as rent, insurance, and food are necessary and should be marked Keep.

Now recalculate your revised expenses. It should be less than when you started.

Get a Loan

The market is dropping and lay-offs are rampant. This is a perfect time to get a loan. Before you think I’ve gone off the deep end, let me explain.

How are you going to pay the electric bill and your health insurance premiums if you lose your job and have no cash cushion? The answer, of course, is to tap into your emergency fund. Unfortunately, a large percentage of people either do not have an emergency fund or it is inadequate. When you are living paycheck to paycheck, it is hard to set aside six to twelve months of living expenses in cash. That’s why you need a faux emergency fund.

If you have a house and you do not have at least 12 months of living expenses in an emergency fund, first try to get a home equity line of credit. The equity line shouldn’t cost you anything unless you withdraw funds. If you get to the point where you need to borrow money to pay your rent or buy groceries, the cost is well worth it.

If you don’t have a home or don’t qualify for a home equity line of credit, look at other sources of credit. I’m still getting “convenience checks” from my credit card companies with incredibly low, long-term rates.

We will get through this. I don’t know when or how it will look, but we will persevere. Some of the ideas above are unconventional and wouldn’t make sense in normal times. However, your goal right now should be your physical and financial security.

For additional help getting through these difficult times, check out my free book COVID-19 Financial Survival Guide.