BY TODD MORA, PROGRAM MANAGER, SANFORD CENTER FOR FINANCIAL PLANNING AND WELLNESS
If you haven’t read my previous post on six steps for surviving a financial crisis, I highly recommend you take a few minutes and read it now.
For many Americans, COVID-19 has exposed the precariousness of their financial situations. This is not a criticism of people who are suffering financially currently, but if we look to personal finance statistics prior to the COVID-19 pandemic, we see some trends that we should all be aware of. Here are just a few of the figures from the FINRA Investor Education Foundation’s Financial Capabilities Gap Study:
- “In Michigan, 45% of individuals lack a rainy-day fund.” This means that almost half of the people in Michigan lacked three months of emergency savings to cover living expenses.
- “In Michigan, 31% of individuals with credit cards paid only the minimum on their credit cards during some months in the last year.” Almost one third of residents in the state of Michigan are not making progress toward paying off the balance on their credit cards.
- “In Michigan, 32% of individuals can answer four or five questions on a basic five-question financial literacy quiz correctly.” More than two thirds of Michigan residents can’t pass the most basic financial literacy test.
Nationally, nearly 70% of Americans have less than $1,000 in savings according to data released by GoBankingRates.com. A medical bill or modest car repair could easily be in excess of this amount. Add in over 1 million unemployed Michigan workers as of mid-April 2020, according to Crain’s Detroit Business, and you have the makings of one of the most serious economic crises the U.S. has ever faced. The big question is how to handle the unprecedented economic challenge going forward. The answer is to look to three key behaviors; maximizing income, minimizing expenses and increasing liquidity.
Many economists have given their opinions as to what the post COVID-19 economy will look like. The predictions range to everything from a V-shaped recovery to a Nike Swoosh shaped recovery. The takeaway here is no one has a lock on what is going to happen when the economy is reopened, so my recommendation is to prepare for the worst and hope for the best. If you’ve been working through the stay-at-home orders, that’s great. If you were laid off or had your hours reduced, you need to be formulating a plan to start generating income. Even if you have been collecting unemployment, you need to think about how you are going get back to work in a post-COVID-19 world.
According to Yahoo Finance News, many traditional employers have immediate openings nationally. The PennyHoarder.com blog has a list of 29 companies that are hiring right now for work from home jobs. If your hours were cut back, but you like your job, you may want to think about a “side hustle” or two. SideHustleNation.com provides information on all kinds of part-time gigs. They also have an informative podcast where successful entrepreneurs share stories about their sources of supplemental income.
Something everyone should be aware of is that the $600 per week unemployment payment included in the CARES Act is over and above the Michigan Unemployment Insurance benefits that eligible unemployed workers typically receive. Therefore, some people have reported receiving more in unemployment than they did working at their jobs. The problem is when the $600 per week runs out, it may be tougher to find employment in a bad economy. Don’t wait, find work and maximize your income now!
If you’re looking at your budget and you feel you’ve maximized your income and still want or need to improve your financial position for a post COVID-19 economy, you’ll need to reduce your expenditures. Here are some strategies to reduce your expenses immediately:
1. Cancel any subscription services you can live without. Are you paying for a premium sports package while sports are postponed? Do you have Disney+, Hulu and Netflix? If you are looking for ways to cut costs, this may be the place to start. PC Magazine writer Jason Cohen reviews apps that can help you manage and reduce your subscription costs.
2. One of the largest discretionary line items in everyone’s budget is their food and grocery line. There are a few basic steps you can take to save money and time on your grocery shopping:
- Plan your meals. Meal planning can help with saving time, money, aggravation and calories. Meal planning is like creating a food budget. If you want to go old-school, grab your calendar and start writing down your menu each day. After you identify your meals, make a list of the ingredients you will need and make your list. If you are all about the apps, there are numerous apps, both paid and free, that can help you master the task of menu planning. Developingoodhabits.com has this helpful review of 19 popular meal planning apps.
- Make a list. I cannot stress this enough. According to CNBC.com, the average American consumer spends approximately $5,400, or $450 per month, on impulse purchases. Make a list of the items you need and then shop your list. Goodhousekeeping.com has a list of the top shopping list apps to make the process even easier.
- Only buy what is on your list—that way you will be able to make sure you are maximizing your grocery budget. Look for store brands and sales for the things on your list. Always compare per unit pricing to ensure you are getting the best deal for your dollar.
- Optional: use coupons. I say this is optional because many times coupons are for promotional items that you may not need. Buying something you don’t need because it’s on sale is a waste of money. There are apps that can provide you with coupons or rebates based on the items you purchase. Ibotta is an app that actually helps you get cash rebates from the items you purchase. You can review your list and check Ibotta before shopping and then scan your receipt when you get home and you’ll receive the rebate within 24 hours. Other apps can help you find coupons for items on your list, alert you to cash back specials at retailers near you, or help you save money with your online shopping. TheBalance.com has a very good review of some of the top couponing apps for 2020.
3. In challenging economic times, you need to negotiate everything. For some, negotiating comes naturally. For others, it strikes fear in their hearts. If you are experiencing financial challenges, negotiating is a strategy to lower some of your monthly bills or save on necessities. The keys to negotiating are:
- Know the value: This means you need to know what the market will bear for what you are purchasing. Do your research and develop what a reasonable price range is before starting the process.
- Be proactive: Throw out the first offer. For example, if you have a cell phone plan that you need to reduce the cost on, call your provider and ask to speak with a customer service representative and explain your situation. Make a reasonable offer to pay a lesser amount for a period of time. If the representative says they can’t accommodate you, ask to speak to a supervisor or someone who might be able to help. Most every company has made and will make COVID-19 accommodations, sometimes you just need to ask and be persistent.
- Remain calm: Do not get angry or emotional during negotiations, despite the stress you may feel. Remember this isn’t a competition, it’s a business deal. Both parties have to feel they are getting value from the exchange to make it happen.
- Embrace silence: Many times, especially in face-to-face negotiations, people will talk nervously and either bid against themselves or not allow the other person to share important information. After you make your initial offer, remain silent and let the other party talk. They may give you clues as to how to get what you want.
- Be ready to walk away: With any deal, the true power comes from the risk of the other party walking away. If you’re the buyer, your power comes from keeping your money and walking away. If you’re the seller, the power comes from the ability to say no to a deal. There are risks for both sides; however, you’ll never know the best deal you can get unless you are willing to walk away.
You can lower your living costs significantly if you are willing to negotiate. For example, if you rent an apartment or home, and you need to reduce your costs, approach your landlord and explain your situation. Give an amount you can afford and ask if you can pay the reduced amount. If it is a substantial reduction, be ready to offer a service in lieu of rent (this is bartering and can be an effective non-cash way of acquiring goods and services). Always try to find ways to make the negotiations a win-win.
Liquidity is a technical term for the amount of cash and assets you can convert to cash quickly. During economic crises, the phrase “cash is king” exists for a reason. People who have larger cash reserves have many more options and security than people without cash. Start with a small goal of trying to save $1,000 for an emergency fund. If that seems overwhelming, then start with $100.
Once you have a goal set, begin by identifying strategies to generate your savings. The previous items discussed, maximizing income and minimizing expenses, can help generate surplus cash for your savings. You can also look around to see if you have surplus items you can sell. Your old gaming system or those designer jeans may be your seed money for your emergency fund. Grant Sabatier at MillenialMoney.com reviews 26 of the top selling apps for 2020. There are apps for all types of products and sellers. You don’t need to worry about meeting people in public places or having to handling cash.
Making it through any crisis requires determination and discipline. The pandemic will end. However, there will be economic consequences from the shutdown. Prepare yourself and create a plan on how you will come out of the COVID-19 experience ready to meet the next challenges and create a more secure financial future.