In addition to the COVID-19 Financial Survival Kit Webcast, the FF team has received hundreds of proactive and reactive calls and emails from employees asking what they could and should be doing financially during this volatile time. We wanted to share some of the most frequently asked questions we’re hearing and the responses from our expert team of CFP® professional financial coaches.
1. I am not so worried about my 401k because I have some time until retirement, but I still have pre-school expenses. My child’s preschool has not yet said when they will open and if I need to continue to pay while they are closed. What should I do to manage the uncertain expenses?
Start with the facts and proactively plan for any variable you can control. Ask your daycare what their policies are and if they have any new updates. Many preschools / day cares are offering to reimburse or halt payments if your child isn’t coming in. Some will do that if it’s for a two-week period or more. Dependent care FSA’s are a resource, but most of the time only if people signed up at annual enrollment.
What are your options if your child needs to stay home longer than you are working from home? If you haven’t already, write down your budget and compare it to a new one with you at home. If necessary, decide which expenses you will cut. Explore ways to cover the need –high school kids are home; do you have one you trust who could watch your child? Are your parents able to help? Are you able to work from home long-term? If so, have a plan for your child so you can focus on work.
2. I am actually thinking about investing in this market, to take advantage of the lows. What do I need to consider before I do so?
Market corrections are historically the best time to invest, but every correction is different. Today (3/16/2020) the market has declined over 30% from its high point less than a month ago. The main concern this time is how COVID-19 will impact the economy over the long-term. For money that is intended for ten years and longer, this could be a great time to invest –stocks are cheap overall. It could also be a good time for tactical investors to purchase stocks with the intent of selling them for a short-term profit. This, of course, takes a higher risk tolerance for loss and more knowledge about investing.
Many brokerage firms offer inexpensive options to purchase a small number of shares so build positions over a few different time periods. If you want to buy 100 shares or put $1,000 in a certain stock, ETF or mutual fund –buy a third or half now and the rest later. This way, you’re not betting on one particular date and are dollar-cost averaging.
Regardless, first make sure your emergency savings are where they need to be –especially in light of this pandemic and how it might impact your income –if all that is set and you have no other short to medium term goals – then yes this can really help you boost your retirement savings. You can do this easily by simply increasing your 401k contributions into a strategy that aligns with this goal.
3. I am worried that I will not be able to stay productive while I am at home, trying to work and home school my three small children. How do I make sure that I am not penalized for this at work?
You’re not alone! First, contact your employer, and discuss how this needs to work. A lot of employers are making concessions and creating more flexibility. Plus, the federal government is putting more muscle behind this so that employers follow.
4. My partner wants to put more money into the market right now, but I am worried that we will just lose it all. What should we do and how do I get over this disagreement with my partner?
First, see response to question 2. Second, you should establish an amount that you are both comfortable with to invest and potentially experience short or long-term losses. Discuss how the loss could affect your overall plan. For the amount you are going to invest, consider investing over a few different dates to avoid trying to pick “best date.”
5. I have a healthy emergency savings account …. I think. How do I know what is a healthy emergency savings account now?
This depends on your specific circumstances. The short answer is: “if you tell me your emergency, I can tell you how much you need in your emergency fund,” but we don’t know exactly how that looks. Consider 3-6 months of expenses as a rule of thumb or how many months it would take you to replace the income you might lose. For some that might be 2-3 months for others it could be longer.
The average time it takes to replace every $10k in income can be about 1 month, but it really does depend on your job, industry and the current job market.The biggest risk for most of us is the loss of a job and this pandemic might have made that risk higher for some. It’s not a bad idea to beef up your emergency fund at this time, delaying major purchases for a few months if you have more risk, watching your spending a little closer and saving in general. If this blows over shorter than the experts expect, you will be in a great place.
6. I was planning to put some money into my kid’s 529 accounts, should I wait? Should I keep it in a more liquid account?
If you have an adequate emergency fund and low debt, you might want to continue purchasing funds in your 529 plan and take advantage of the monthly dollar cost averaging –purchasing shares of funds on the same date every month spreads your risk, buying more shares when prices drop.
7. My kid is going to college next year. How can I take advantage of the low interest rates that I have been hearing about?
Borrowing for your child’s education is a larger topic to really plan for. Student loans are not available a year before they attend school. There are opportunities right now for borrowing at low interest rates such as home re-financing, home equity loans and personal loans. IF, if, if this is your well thought out plan, you may want to talk to a couple lenders and explore rates. This is a good time to review your child’s investments and adjust if necessary. If available, this is a great conversation to have with a financial coach.
8. I wanted to invest some money into my house. Should I wait or use the time to stimulate the economy and online shop?
This depends on your overall financial health and balance sheet. The economy could use your help, but you shouldn’t put yourself in a potentially compromising position. I would first review your financial priorities. Do you have adequate emergency savings, are you contributing to your 401k to get at least the match, do you have any high interest rate debts?
Also, it depends how you want to invest in your home. Do you want to renovate, make repairs? Are you looking to make additional payments? Now might be the time to refinance your debts to lowers rate and explore making the same or more payments to pay them off faster vs investing for your long-term goals. There is a trade-off for every decision you make depending on the time you have to get to that goal, and your tolerance for risk.
9. I don’t know if my preschool can continue to pay teachers while the school is closed. Is there something that I can do to support them? Is the government doing anything to help these low paid hourly workers?
I recommend contacting your care provider and asking them directly. If you have the means, you can buy gift cards or offer to make a utility bill payment for them. One of our coaches has volunteered to continue school payments even though they’ve kept my kids at home. Congress is debating a relief package, but we don’t know what it entails or when it will be approved.
At this time we are not aware of any government sponsored or state sponsored programs to help this exact demographic – however in general, states are making unemployment insurance more readily available, some employers are offering paid time off, and paid family leave (depending on the size of the organization that may or may not be mandated at the federal level).
10. My partner may lose his job or some of his income. We were actually planning for our income to increase this year! How should I rethink all of this during this uncertain time?
Re-assess your situation and map out a scenario for both potential paths. If you have a decline in income, decide how you will either make up for that income in another way or decrease expenses. Challenge all your fixed home expenses – do you need them? Are you paying the right amount? Control your variable expenses – limit the amount you are spending on groceries, dining out, entertainment, etc.
Create a crisis budget then start living off of that right away to increase cashflow to savings. Try and build that up as much as you can. Line up other methods of income, savings that might be available to you as needed, review company benefits and speak with employer about help that might be available if you were to lose your income. Some are offering paid time off, paid sick leave, and/or paid family sick leave.
11. If you are in the position to help others, what are some immediate actions you can take?
- Supporting small businesses
- Supporting those who may be impacted more directly (teachers, childcare providers, people who work in your home)
- Consider reaching out to elder care centers, nursing home or your neighbors that you know might be at risk. Offer to run errands for them –whether it’s shopping for groceries etc.
12. I have some loans that I was thinking about paying off (or I was debt snowballing my way to financial freedom). Is this a good idea or should I hold onto my cash?
It depends on your emergency savings situation, and the likelihood of your household losing income. If your savings aren’t where they should be and or you feel your income is in jeopardy – then the answer is to pause any aggressive debt paydown plans and save more cash for now. If your interest rates are high, you might keep a month’s expenses in cash and use the rest to pay off your debt.
13. What can I invest in that will help stimulate the local economy? The national economy?
Given the nature of the virus and our focus on containment and social distancing – make sure to follow CDC guidelines and do your best to support businesses in a way that serves your needs and helps stimulate the local economy but doesn’t put you or others at risk. (ie grocery stores, pharmacies, ordering your goods online to be delivered curbside, ordering delivery from local restaurants / deli’s if that fits your budget and needs). Don’t jeopardize your own financial safety in the process!
14. I’m planning to retire in three months and I’m invested in the market. What should I do? Will I still be able to retire?
This is a difficult decision because you might have experienced significant losses already. You should run a retirement estimate and re-assess your retirement plan to determine how the recent market declines have impacted you and your ability to meet your future retirement needs. If you are planning to retire in the next year or two, compare your current cash flow (income and expenses) with your potential phases of retirement (when your income or expenses change can define the different phases). With that analysis, you are able to identify shortfalls in the short, mid and long-term.
You might consider investing money you’ll need in the short-term (next 5 years) in a safe place like cash, stable value, money markets, CDs, etc. You can’t confidently expect losses to recover in time before you will need the money. The mid-term money could be invested conservatively with the goal of pacing inflation and fulfilling the shortfall need in 5-10 years. Short and mid-term bond funds, conservatively managed portfolios and laddered CDs are examples.
Money needed in more than 10 years can be invested according to your risk tolerance and need for potential growth. If you can determine that you don’t need to take a lot of risk to meet your needs, you might want to reduce it. If available, absolutely call a financial coach!
15. Should I stop contributing to my 401k?
Typically, the answer is no for a couple of reasons. If you are getting an employer match, at least try to contribute enough to get that free money. For most plans, you are not able to get that matching opportunity unless you beef it up significantly at the end of the year. Also, you might have experienced losses in your account. One way to recover from these losses is to continue to dollar cost average (automatic investments over time) into funds that are down so when the market recovers, you see gains. Buy low for the long-term.
However, if you are in a situation where you have no or very little emergency savings and feel that your income is threatened then this might be one of the only times to consider doing that so that you can shore up your emergency savings. If you are in this situation you will FIRST want to challenge all of your expenses and keep only the essentials. All extra cash should be diverted into your emergency / crisis / protection fund.
16. What does it mean to take a 401k loan in a down market? What are the pros / cons versus using a credit card?
Taking a loan from your 401 (k) is discouraged unless necessary. But if you need to take a 401 (k) loan, it is best to avoid doing so in a down market. Of course, you don’t have the luxury of knowing when you will need it or even if you are in a market that is increasing or declining. If you take a loan when the market is low and pay it back monthly in a rising market, you are essentially selling at a low price and buying back as prices increase, not a good investment strategy. This could work in the opposite way if you take a loan and the market declines as you pay it back, this would be a good investment strategy if you could predict it.