Preparing Your Finances for the Coronavirus (or any Illness)
With all the news about the coronavirus or COVID-19, you may be wondering how it might impact your financial situation. A lot of the discussion has been about the stock market and the world economy. Unfortunately, these are out of your control and now is not the time to let emotions rule your decisions. You have heard it before, ride it out and the markets will eventually come back up.
But what about your day to day finances? Let’s take a look at the things you can control and the actions you can take now to prepare for any short-term cash flow impacts.
Take Appropriate Precautions
The best way to control your medical expenses is to avoid getting sick altogether. Take the advice of the experts at the CDC and try to minimize your potential exposure. Wash your hands with soap and water, avoid touching your face, eyes and mouth and consider temporarily forgoing some of your planned outings that put you in contact with a lot of people. Cutting back on these expenses can help you save some extra funds in the event your income is affected. Stay properly informed by getting the latest updates from the Centers for Disease Control and Prevention.
Stick to Your Budget
Now is not the time to panic and bust your budget by filling your closets with toilet paper, face masks and hand sanitizer! Stay on your plan and continue to maintain and update your budget. Don’t let social media and the “if it bleeds, it leads” media scare you into making bad spending decisions. If you anticipate lower wages, then start looking at your budget to see if there are any areas you can cut back on. Since we are all being encouraged to practice social distancing, you may be able to easily lower any eating out and other entertainment expenses.
Slow Your Debt Payoff
If you don’t have a fully funded 3-6-month emergency fund, you should temporarily pause any extra payments you are making towards debt and use the extra funds to build up your savings. Until you know how an outbreak might affect your earnings, it is smart to have some extra money available in the event your paychecks are lower than expected due to reduced hours. Once things begin to return to normal, you can go back to your previous debt payoff strategy. And, if it turns out that you don’t need to use the extra savings, you can apply those funds to your debt as well.
Prepare for Future Health-Related Expenses
One important component of becoming financially fit is establishing and maintaining a 3-6 month emergency fund. This is money set aside and not earmarked for any other goal than weathering an unexpected loss of income or emergency expense. In addition to having this savings, you should also take advantage of any tax advantaged arrangement that helps you save and pay for medical expenses not covered by your health insurance. These accounts are usually offered through your employer and include FSAs (Flexible Spending Arrangements), HRAs (Health Reimbursement Arrangements), and HSAs (Health Savings Accounts). Check with your employer to see if any of these are available for you.
For those who don’t have access to a tax advantaged account, consider creating a separate savings bucket for medical expenses to save for doctor copays, prescriptions and coinsurance. With the exception of your health insurance premiums, most medical costs occur at random times and can have a large impact on your cash flow. Having some money saved specifically for health-related expenses can take a lot of stress off of your finances.
If you need help figuring where to start, we can help. Schedule a Free Assessment Call to find out how one-on-one coaching can help you create a customized plan to get out of debt, save more and prepare for the unexpected expenses in your life.