How to Financially Navigate COVID-19

With stimulus checks hitting bank accounts and mailboxes already, here are 5 smart ways to spend your relief money from the government.

1. Put it in your savings account. A fully stacked emergency fund is having 3-6 months of paychecks in a safe place, like a high-yield savings account. If you’re still working towards this goal, $1,200 is enough to make some solid progress!
2. Pay off your credit card. If you’ve been swiping more than usual on extra groceries and a fancy home office, use your stimulus check to pay it off and avoid expensive, high-interest debt. 
3. Put it in a retirement or investment account. While you can’t put your stimulus check in your 401(k), you can put it in another long-term investment account - like an IRA, Roth IRA, or brokerage account. Plus, there’s still time to make IRA contributions for 2019 since the new tax filing deadline has been extended to July 15. 
4. Save for occasional expenses. I’m not talking about emergencies...these are the expenses that come up once or twice a year, yet we never seem to prepare for them. I’m talking about Christmas gifts, weddings & bachelorette parties, and that time your friend convinced you to go on a week-long yoga retreat. Instead of letting these expenses blow up your budget, stash some extra money in a separate savings account for later.
5. Support local businesses. Your favorite bars and restaurants are hurting while the economy is shut down. Here’s a fun way to spend local - choose 1-2 nights a week to order takeout from your favorite neighborhood restaurant. Or better yet, send your friends or co-workers a surprise treat while everyone is WFH.

If you’re freaked out and want to stop the bleeding in your portfolio, you’re not alone. Our brains are wired to want to take action and protect us from loss.  

However, at LearnLux we continue to believe that markets will continue to act like markets... more volatility, more drops, intermittent recovery days, maybe a false recovery in there (just to mess with our heads), and ultimate recovery. Volatility and recessions are the price we pay for the potential long-term gains that the market has historically provided.

If you’re thinking about getting out of the market, we encourage you to pause and think about how that will play out and when you’ll get back in. If you get out when the Dow is at 19,000, are you going to buy back in when it hits 15,000? What if it then goes to 12,000? Are you going to get back out to stem losses or buy more? And then maybe the market eventually recovers and gets back to 30,000. Were you in on the recovery? Or did it feel too late to get back in once it was climbing? Or did it feel like a "false recovery" so you stayed out? Our emotions are notoriously terrible at driving the right investment decisions, but they're so strong! 

So instead of watching your portfolio drop and feeling like a sitting duck, remind yourself that you are strategically staying invested for the long term based on historical data that has shown the likelihood of an eventual market recovery to be very strong.

To soften the blow of COVID-19 on the economy, the Federal Reserve lowered interest rates to near zero. So how does this impact your finances? The first change you might notice is a drop in your savings account rate.

Even with lower interest rates, a savings account is a safe place to keep the cash you’ll need over the next few weeks/months. Here are some high-yield savings account options to pick up some extra interest if you’re not already.

Lower interest rates could also lower your credit card bill. If you have a balance on your credit card, check your account over the next few days/weeks to see if your bank automatically lowered your interest rate. Some major credit card issuers are even offering customers emergency support by increasing credit lines, offering payment flexibility, and more. 

If you have a HELOC or adjustable rate mortgage, your interest rate could adjust downward which would save you some interest. 

Finally, there have been some attractive mortgage rates available recently. Speak with your mortgage broker if you’ve been considering a refi. Now could be a good opportunity. 

For now, interest on federal student loans has been paused. This likely means that new interest on qualifying federal student loans will stop accruing for as long as the waiver is in effect.

This doesn’t mean your federal student loan payments will disappear or the monthly amount will decrease. It more likely means your dollars will work harder by going towards previously accrued interest or your loan’s principal instead of newly accrued interest. Check out this article for more details. 

Putting money in the market just means buying equities that are traded in the stock market. Equities include stocks, mutual funds, and ETFs. Since the stock market has gone down quite a bit in the last several weeks, some are saying it’s a good time to buy equities because they are cheaper than they were before. While it’s certainly true that equities are cheaper than they were before, investing in the stock market involves risk. If you're considering investing right now, make sure you have a well-stocked Emergency Savings first, so that if you need cash, you have it handy. At LearnLux, we believe investing is a great tool to help you reach long-term goals (i.e. five or more years away). Before you invest, get clarity on your goal, your time horizon, and how much volatility, or fluctuations, you can handle in your portfolio. 

Officially, a recession is defined as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in GDP, real income, employment, industrial production and wholesale-retail sales." What that means is that a recession is when the economy slows down significantly, which typically involves unemployment going up, wage growth slowing down, lower consumer spending, and less economic output overall. Although we don’t quite have enough data to officially declare a recession based on the COVID 19 pandemic, we’re very likely in a recession. On average, recessions in the US last about 11 months, but this one could be shorter or longer. A recession means that your portfolio will likely drop to some extent, some employers will have layoffs, and wage growth might slow down for a bit. Recessions are part of the business cycle, and we expect them to happen periodically with an eventual recovery, but only time will tell how exactly this one will play out.  

Your HSA/FSA can be used for things like thermometers, but without a prescription, your HSA/FSA can’t be used for over the counter medicine. It also can’t be used for hand sanitizer. If you need to get tested for Coronavirus, the test itself is free, but your HSA/FSA can be used to cover other associated costs of medical visits and treatment. 

Check out HSA Store & FSA Store for a complete list of eligible items and care you can purchase with tax-advantaged dollars from your FSA or HSA. 

Delivery services, grocery stores, Amazon and Walmart, among others, are hiring if you’re looking for a side hustle.

We’d say your Emergency Savings is fully stocked if you have 3-6 months of income set aside. That said, it’s a good idea to stock up on extra cash in times like these, especially if you think your income might be at risk. Do what you can to reduce expenses short-term and put a little extra cash in the bank. For example, if you have to cancel travel plans, you should be able to get full refunds, and you can put that cash in your Emergency Savings. Every little bit helps. If you’re no longer paying for childcare because the coronavirus shut down your daycare center, sock away those extra funds in your Emergency Savings. 

Use tax refunds to pad your Emergency Fund. And keep in mind that although the IRS has extended tax day until mid-July, your state may still require that you file and pay income taxes by April 15th. Plan to file federal and state taxes by April 15th, but know that you have a little extra time to pay if you owe the IRS.

And although there’s no need to worry, it’s a good idea to make sure your cash is FDIC insured.

Having cash when you need it is more important than taking advantage of a down market. That said, you might be able to do some of both depending on your situation. Ensure that you have at least 3-6 months of income in your Emergency Savings. It’s a good idea to sock away additional cash given the unknowns right now, especially if your income is at risk. 

That said, continuing to invest in your 401(k) throughout a market downturn can be a great way to take advantage of some lower stock prices. 

Rather than prioritizing paying off debt, I would first prioritize ensuring that you have a healthy amount of cash available. Even if it means slowing down on other goals, having cash is incredibly helpful should you potentially have an income disruption or unexpected medical expenses. If you have a healthy amount of cash already, use your employer retirement plan to invest over time. And as for when it’s best to focus more on debt vs. investing, consistently making progress on both is a great way to go since timing the market is virtually impossible.