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Guide

A guide for financial survival during the COVID crisis

Tips for making financial decisions and stretching your money while living through a global pandemic and economic downturn, by financial planner Lewis Weil with illustrations by Qiong Li.
Prelude

If you are in a perilous financial situation right now, you are not alone. As a financial planner serving artists and creative freelancers, my phone has been ringing off the hook with clients wondering how they can survive this unprecedented situation from a financial perspective.

Before making any financial decisions right now, take a deep breath or two. Being freaked out is a normal and justified feeling. However, financial decisions have long-term effects and it is important to try to avoid making rash decisions based on fear. Yes, it is scary, but times like these are why we plan. Our current situation won’t last forever, so the best thing to do is focus on getting through this while simultaneously planning for the future.

Now, before we go too deep, I’ve got to include a note about how everyone’s financial situations are different, so the best thing you can do right now is talk to a financial planner. Helping people through challenging times is what financial planners do. We’re here to help you understand your risks, and ensure that you’re doing what’s best for your financial health based on your unique situation and the markets. If you don’t yet have a financial planner and would like to connect with one, you’re welcome to reach out to me at Money Positive. I’d also recommend talking to Phuong Luong at Just Wealth or Ally-Jane Ayers at Brooklyn FI, as they are both excellent planners.

For those of you who don’t plan to work with a financial planner at this time, I hope the following tips can at least guide you in the right direction. To make this article as helpful as possible, I have broken up my tips by a handful of financial situations, from those of you who might still have some income and savings, to those of you who are already in a true financial emergency. You should also know that for more general financial-planning tips, it’s worth reading my previous TCI article, An artist’s guide to financial planning.

Regardless of what financial situation you find yourself in, remember that nothing lasts forever, and eventually you will be able to make sense of everything again. Hang in there.

— Financial planner Lewis Weil

Sections
Guide

If you still have some income, or have cash on hand…

What to do: Bulk up your emergency fund with cash.

Even if you’re not yet in dire straits financially, it’s still a good idea to act like you are. Now is the time to focus on adding as much cash to your emergency fund as you can. In normal times, I like my clients to have three months’ worth of obligations and spending in their emergency fund (i.e. enough cash to last you for three months). Having an emergency fund set up before facing a financial emergency will be the difference between a challenging time and a life-altering time.

In order to bulk up your emergency fund, you need to have a clear picture of what you must spend money on vs. what you don’t really need to spend money on, so you can reduce unnecessary expenses and channel extra money into your savings.

Determine how much money you can add to your emergency fund each month:

  • Make a list of all your bills and expenses, and what they cost every month. Here’s a Google doc template you can copy.

  • Go through your list, and search for what you can safely put off or stop paying for.

  • Add up all the expenses you must keep paying for. This is now your monthly budget, and represents the amount of money you will need to keep spending each month.

  • Subtract your budget amount from your monthly income. Whatever’s left, you should be adding as cash to your emergency fund.

  • Moving forward, when you get paid, immediately move that amount of cash to a dedicated savings account. This way you won’t accidentally spend it.

As I tell all my clients, the trick to having money is holding onto it whenever you do get some. This means figuring out how you can make your monthly budget as small as possible, so that your money lasts for as long as possible. If you have loans, stick with making minimum payments for now. This will help you hold onto your cash. The desire to throw extra payments at debts is powerful, but right now, unless you have a ton of surplus income, you should be focused on keeping your money wherever you can.

A quick note on savings accounts: It’s very important to put your emergency fund cash in a dedicated savings account to keep it accessible and separate from your other money. If you don’t already have a savings account set up, you can use something like nerdwallet to research account options with the best interest rates so that your cash grows a little while it’s sitting there. But please, don’t try to get fancy with your savings by investing it. It is important that emergency funds are stable and easily accessible, not tied up (or potentially losing value) in funds or investment accounts.

One more note: Now is a good time to make a budget for helping others, if you have the means to do so. The needs of others are endless, but your bank account probably isn’t, so it’s important to make an informed decision about how much you can give before giving so much that you accidentally hurt yourself or your family. Remember: Giving can mean donating cash or goods, or reducing/waiving rent for roommates and tenants. It can also mean buying art and supporting local businesses, or volunteering. So once you figure out how much you can afford to give, go ahead and back that Kickstarter campaign, and chip into that restaurant’s relief fund.

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If you have invested money, and are wondering what to do as it loses value…

What to do: Stick to your plan.

Do not sell your investments just because the market is down. Selling because the market is down is a classic mistake. As a general rule, you should get into the market slowly over time, and get out slowly once you retire.

I was inspired to become a financial planner because in the economic downturn of 2008, I had a colleague who was supposed to retire. She had an inappropriate portfolio for her age, and when the market crashed, she couldn’t retire. The lesson here is that your investments should always be in funds that are appropriate for your age and goals. Age is important because it determines the amount of time you have left to save money and let your investments grow before you retire.

“Target date funds” are a type of fund that are designed to automatically adjust over time, becoming less and less risky as you get closer to retirement. So, when you are 35, your portfolio will look very different from when you are 65. All of my retirement funds are in target date funds, because I believe that investing should be boring, not risky.

If your emergency fund isn’t yet sufficiently bulked up (i.e. you don’t have enough cash to support yourself and your dependents for at least three months), and you have been contributing into a retirement plan at work—or if you have been investing on your own in an IRA—now could be a good time to pause your contributions and reallocate that part of your budget towards your emergency fund. As a rule of thumb, I generally have clients prioritize their emergency funds before focusing on investing. However, do not sell your stocks out of fear to get out of the market right now, and only take money out of your retirement fund as a last resort.

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If you’re out of work and/or your savings are shrinking…

What to do: Find ways to further reduce your expenses, and look into personal safety net options.

Now is the time to consider where you can reduce your expenses and generate more cash, before you’re in truly dire need. Below are some options to consider:

  • Get on unemployment if you can. Unemployment benefits are a form of insurance, so take advantage of them. If you were in a car accident you would use your car insurance to cover your losses, and taking unemployment money from the government is no different. Fortunately, in many US states unemployment insurance can now be extended to the self-employed and gig workers. Unfortunately, all states and countries have their own rules, so you’ll have to do your own research to see what you qualify for. Those in the US can check what your state offers here.

  • Use credit cards so you can hold onto your cash. Just be incredibly picky about how you use cards—I recommend using them to strategically preserve cash for when you need it, like paying rent. Keep an eye on your balances and make sure you are sticking to your budget. With credit cards it is easy to spend more than you should, because that’s how these companies make money: by making it easy to spend, and then charging you interest on what you spend and don’t pay off.

  • …a note on credit scores: Before talking about options for using loans to help you get by, it is helpful to understand credit and credit scores. The official site for checking credit reports is annualcreditreport.com, which is good but not super user-friendly. Personally, I like to use credit karma, and just ignore the ads. It will help you to understand your credit score and how to improve it. The higher your credit score is, the more reliable creditors will assume you are, and therefore, they’ll be willing to give you larger loans and charge you less interest. In the sections below we discuss refinancing debt, so note that your ability to do that will depend on your credit score. If you do have a low credit score, the only way to fix it is to build up a better credit history, and history takes time. I will share one little trick, however: call your existing credit cards and ask them to increase your credit limit. This can instantly improve your debt ratio, because owing above 30% of your available credit hurts your score. (Note: This could be its own article, so check out this site for more information)

  • Refinance credit card debt with a personal loan. Credit card debt is a type of high-interest loan, and can often be refinanced in order to save you money in the long term. Interest rates are really low right now, so it is a particularly good time to ensure you’re not paying more interest on loans and debt than you need to be. One way to refinance debt is with a personal loan from a bank or credit union. Personal loans are exactly what they sound like: loans from a bank, straight to you, for general use. You can use the money from the personal loan to pay off your credit card, and then make payments on your personal loan instead of to the credit card company. Banks don’t really advertise personal loans because they often have much lower interest rates than credit cards. Since personal loans often have interest rates in the single digits (while credit cards often charge 20+% interest), they can save you a lot of money if you think it may take you a long time to pay off the debt.

  • Transfer your existing credit card balance to a 0% credit card. Balance transfer cards have promotional rates where you owe 0% interest during the promotional period, which is often a year or more. To move your credit card debt over to a 0% credit card, you apply for the new card, and then if you are approved, you transfer your balance to the new card. Then, the debt you owe does not accrue interest during the grace period. You can use this time to delay payments or to pay off your balance without it accruing more interest. Here’s a roundup of cards w/ 0% APR for April 2020. While this is a great option for the short-term, the 0% grace period will eventually end, and once the interest kicks in your debt can start to balloon. So, use these tools carefully. With my clients, I encourage them to do 0% balance transfers if they can likely pay off the balance during the grace period. Otherwise, I prefer they do a personal loan. I have even seen people use 0% cards and then later refinance the remaining balance to a personal loan. It’s also worth noting that your ability to refinance is dependent on your credit score, so if your credit score is too low (“too low” varies based on every card’s requirements), you may not qualify at all, or you may not be able to refinance the entire amount of your loans.

  • Refinance car loans and mortgages. You can also refinance car loans and mortgages to get a better interest rate and extended time to make payments. If you go this route, you are simply replacing your old car loan or mortgage with a new one that has a lower rate. For mortgages, it is usually only worth going through this process if you will save 1% or more on your interest rate. As with personal loans, credit unions tend to offer the best interest rates and customer service—I recommend checking with a few credit unions to see who has the best offers and service.

  • Delay payment on student loans. In the US, many federal student loans have been made interest-free for 60 days, starting from March 13, 2020. This means you can skip payments until May 12, 2020. For more information and to research your loan options, go here.

  • Ask lenders if you can skip a month. Oftentimes if you warn a lender that you are going to miss a payment, they may grant a one-time waiver. Lenders are getting a lot of requests right now, so it doesn’t hurt to ask and find out your options.

  • Ask to have bank fees (or other types of fees) waived. If you get a bank fee from overdraft or late payments, call and ask politely to have it waived. Remember that everyone is human, and this pandemic is affecting us all, so it never hurts to ask for some compassion.

  • As a last resort, Roth IRA contributions can be withdrawn without penalty up to the amount you have personally put in (this is called your “basis”). For instance, if you have invested $2000 every year for five years, you could withdraw up to $10,000 without paying a fee. If you have any gains above that, you cannot take those out without penalty. Only do this if you have exhausted every other option, as taking money out of a Roth IRA will cost you a lot in lost potential growth between now and your retirement. Be as nice to future you as you can.

  • As another last resort, you can consider taking out a loan against your 401k. Some plans will let you do this without having to withdraw your investments. This can be risky, but is usually better than liquidating your 401k.

  • Taking money out of your 401k should truly be a last resort. Because the market is down, you would likely be selling your contributions at a loss, and there are also taxes and penalties for taking 401k money out before retirement. If you are truly in a survival situation, then it could be worth going this route, but really—this should always be your very last resort, once you have exhausted all other options.

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If you’re out of work and in debt…

What to do: Lean on others, and get creative with your options.

If you don’t have any income or financial resources right now, it is time to ask for help. Your wealth isn’t just your bank account—it’s also your friends and family, your karma in your communities, and support systems that exist to help you through times of need.

A good exercise is to make a list of everyone who might help you, and then consider ways you could ask for their support—whether that’s through financial assistance, or something else. If you need to move in with someone temporarily, do it. If you need to ask for a job or a loan from a family member, do it. If you need to ask a knowledgeable friend for help sorting through your financial options, do it. Just remember to return the favor someday when you are able.

Here are additional options to explore:

  • The safety net in the US is lacking, but there is some help available from the government. For cash benefits there is Temporary Assistance for Needy Families, which is commonly referred to as Welfare. There are also WIC/SNAP benefits for buying food, and Medicaid and CHIP for accessing healthcare. There are also benefits for affordable housing. If you need these benefits, use them! Go here to see if you qualify, and to apply.

  • Artists can also take this time to look into grant opportunities, or other types of artist funding. Kickstarter has a helpful roundup of artist resources, featuring emergency grants, freelance resources, legal aid, and more.

  • In Austin, musicians can get health insurance through Health Alliance for Austin Musicians (HAAM). Wherever you are and whatever your particular situation is, it’s worth researching opportunities for funding, healthcare, and support in your area, since a lot are cropping up right now.

  • Find a way to do your work remotely if you can. This can be a good time to grow awareness of your creative work in particular, since lots of people are home and looking for new interesting things to do and watch. Give lessons, show your process live. Stream your work on YouTube, Twitch, or Instagram—then ask for donations, set up a Patreon, or run a Kickstarter project as a way to enable your community to support you financially.

If you still haven’t filed your 2019 taxes…

What to do: File your taxes, and put your tax return into your emergency fund.

In the United States, the deadline for filing and paying taxes has been pushed back from April 15 to July 15. If you know you are going to owe money, it might be worth putting off filing and paying so you can hold onto any owed cash. Normally I don’t suggest making the IRS wait, but this is an unusual time and you need to take care of yourself and loved ones.

However, if you are expecting a tax refund, file that shit ASAP and put your tax refund in your emergency fund. If you get a stimulus check (see below), put that in your emergency fund!

For helpful guidance on filing your taxes, refer to TCI’s Smart artist’s guide to income taxes.

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Lastly… What about that $1200 check?

Stimulus checks from the US Government will soon start to go out to most Americans (more info here). The checks are going out automatically, so you don’t have to request one. The amount you will receive is based on the amount you made according to your last tax return:

  • If you made less than $75K in 2019, you will get $1200

  • If you made more than $75K, you will get less than $1200 (use this calculator to find out exactly how much you will get)

  • If you made over $99K, you won’t be getting a check at all

  • For couples who file jointly, those who collectively made less than $150,000 last year will get $2400 total

  • Couples who made $198,000 or more will not be getting a check

If you have not filed your taxes for 2019 yet, then your 2018 return will be used to calculate your check. If you made less in 2019 than you did in 2018, then it’s worth filing ASAP to ensure you get a check for closer to $1200.

If you had your last tax return sent via direct deposit, then your stimulus money should come directly to the same account. If you have recently moved and are expecting a paper check, then make sure the IRS has your current address ASAP by filling out and submitting Form 8822.

In conclusion…

Yes, things are tough right now, but you’re going to get through this. Remember that one day, this will be a weird, surreal memory that you share with everyone else who’s alive right now on the planet. So, keep going and don’t let fear blindside you. Figure out your budget and stick to it. Be nice to yourself when you slip up. Every mistake is an opportunity to learn. Feel free to reach out to me or another financial planner for guidance on your specific situation. Get help when you need to, and give help when you can.

And lastly, when this is finally over, keep being good about washing those hands!

About the Author

Lewis Weil

Financial planner

Lewis Weil is the founder of Money Positive, a worker-owned financial planning cooperative in Austin, TX. Weil was previously a professional molecular biologist studying neurons, seaweed, and DNA. While working as a biologist, he realized he was surrounded by brilliant people who were bad at money. This realization led him to taking financial planning courses, then to becoming a registered investment advisor (RIA) and starting Money Positive with the goal of helping people to build longterm financial security. Weil lives in Austin, TX, where he spends his free time doing natural habitat restoration and hanging out with his partner Rae and his pitbull Bubblegum.