Welcome to NerdWallet’s SmartMoney podcast, where we answer your real-world money questions — in 15 minutes or less.
This week’s topic is the coronavirus pandemic and how to brace financially for the fallout.
The financial effects of the novel coronavirus and the COVID-19 disease that it causes are likely to be profound, with many people losing jobs or having their hours cut as the economy slows. It may be too late to scratch together a three-month emergency fund, but it would be prudent to reduce your spending if possible and reserve some cash just to give yourself a small buffer.
Having access to credit can be helpful in a crisis, as well. People with good credit scores may be able to open a credit card with a 0% teaser rate. People who don’t have good credit may be tempted to take out payday loans, but those can be ruinously expensive. Look instead for payday alternative loans. Consider other community resources, such as the Jewish Free Loan Association.
If you can’t pay all your bills, try to prioritize the essentials such as shelter, food, utilities and transportation. Contact your lenders to see if hardship programs might be available.
The crisis also has had a big impact on the stock market, which has seen some wild swings because of all the economic uncertainty. If you’re a decade or more from needing the money you have invested — if your retirement is more than 10 years off, for example — you can treat the gyrations as background noise. If you’re closer to retirement or already in retirement, you may need to make some adjustments. Now is a good time to check in with a fee-only, fiduciary financial planner for a second opinion on whether your retirement plans and investment allocation still make sense.
And of course, people’s travel plans have been upended. Travel insurance often doesn’t cover this type of disruption, but many travel providers are waiving change and cancellation fees.
Focus on what you can control, not what you can’t. It’s important to stay informed, but not to overdose on bad news. Consider limiting your time spent on watching news updates.
Prioritize your bills. If you can’t pay all your bills, focus on paying the essential: shelter, food, utilities, transportation.
Invest for the long term. The stock market will settle down and eventually recover. If your goal for your investments is more than 10 years in the future, you can ignore the day-to-day swings.
More about coronavirus on NerdWallet:
Liz Weston: And I’m Liz Weston. As always, be sure to send us your money questions. Call or text us at (901) 730-6373. That’s (901) 730-NERD. Or email us at [email protected]
Sean: This episode, we’re taking on a topic that we’ve received a number of questions about in the past few weeks: coronavirus and how to financially brace for it. The effects of the novel coronavirus and the COVID-19 disease that it causes are already being felt in our economy. Many workers are having their hours cut or are being laid off. The stock market is having a conniption and people are trying to figure out how to brace for the worst, and that means shoring up your finances and for some people doubling your stock of toilet paper.
Liz: Sean, you said you thought that was a joke, but you found it’s not.
Sean: I went to the store just last night and the shelves were empty.
Sean: I’m glad that I have one of those Amazon subscriptions that I just get something regularly because otherwise I would be there grabbing napkins. Who knows? But it’s pretty serious. A lot of people are really anxious right now and a lot of people are going to be in a pretty tight financial position.
Liz: So in this episode of the NerdWallet Smart Money Podcast, we’re going to talk about how to prepare yourself mentally and financially, what to do if you can’t pay your bills, and why now is a great time to practice patience with your investments.
Sean: All right, let’s dive in.
Liz: OK, let’s start with the mental preparation part because I think this is taking a toll on people in ways maybe they didn’t expect.
Liz: So Sean, what’s going on with you?
Sean: Well, I am definitely one to fall down a news hole when something like this happens. To me, that means just looking at Twitter or listening to the radio and getting really caught up in these moment-to-moment updates, and to me that actually makes me feel anxious. I think I try to do it because I want to regain any semblance of control, but I’m just hearing about things that I can’t actually control. And I think that a lot of people are feeling similarly anxious because it is pretty serious and there’s a ton of uncertainty. So one thing that I think would be good just mentally is for people to be aware of their anxiety and to not obsess over what they can’t control. Instead, try focusing on what you can control, like how much you’re washing your hands or the type of news that you’re consuming and the cadence of that news consumption.
Liz: I think putting some limits on it is really smart. I mean, you want to be a prepared citizen, you want to be aware of what’s going on, but I think we all have a tipping point where it’s just too much.
Sean: Yeah, and I really like doing things that make me have some sort of semblance of self-control like this. I deleted Twitter off my phone and I put on an extension on my web browser that makes it so I can only look at it for five minutes a day. And that way when I get that urge to see something, I’m going to a news website and not just falling down the feed of people screaming into the void. Just find some way to make it so that you’re moderating what you’re consuming because otherwise it’s really easy to get really worked up about this kind of stuff.
Liz: Yeah, absolutely.
Sean: I think that’s good mentally, but there are a number of things that you can do financially to prepare for a hardship like this.
Liz: I was thinking about the experience of walking into a grocery store and seeing that the shelves are empty and you realize, oops, it’s a little late to prepare now.
Liz: So there’s a limited amount you can do. If, for example, you’ve been living paycheck to paycheck and you just lost your job, I can tell you to have a three-month emergency fund and it’s like, “Well, that was very helpful." So obviously, if you do have a job, if you are still working, you want to be cautious about spending, you do want to put a little bit of extra money aside. And we at NerdWallet have never been huge on putting the emergency fund first because there are a lot of other financial priorities that generally have to take place that are more important in the long run. But we do want you to have at least some kind of emergency fund — $500, $1,000, anything that gets you out of that paycheck to paycheck trap that it’s really easy to get into. So if you’ve got that, great. If you’re in a position where this is coming a little too late, then we have other ideas for you.
Sean: That’s one thing that I was thinking about as well. A lot of folks realistically are living paycheck to paycheck. They don’t have an emergency fund and now is really — especially if your hours are cut — now is when you would want to tap that. So one thing that I’m thinking about here is I know that a lot of folks are going to be using their credit cards, and if you don’t have savings, I think that now might be a good time to apply for a 0 APR credit card that would potentially offer a short-term cash buffer. Now, we don’t typically advise going into debt, but if you need a bridge to cover expenses right now, this could be an option. Just make sure that you make all of your payments on time so your credit is steady and have a plan to get out of that debt before that 0 APR period ends. Because all of these cards, your APR period is typically between 12 and 15 months and after that interest rates can kick up to 15% or higher. So just be really aware of it.
Liz: There are also some alternatives to payday loans. So if you search on payday loan alternatives, some of these will show up and they’re things like charities. I know the Jewish [Free Loan Association] is out there saying, “Hey, we’ve got money for people." There are short-term grants that are a possibility. There are food banks. There are people trying to help in various ways. So there are alternatives to the payday loan. Payday loans are really scary.
Liz: People borrow the money and they get stuck in a trap where they can’t pay it back when payday comes and they just wind up owing, owing, owing, and not being able to dig themselves out. So anytime you’re thinking about one of those loans, look for an alternative.
Sean: Now is a really good time to look to your community and see what resources there are. This is the time when a lot of these nonprofits and local community groups are kicking into high gear because this is what they’ve been preparing for. And they’re there to help you. But the resources are finite and it can get really hard when you do lose your job as a lot of people, especially in the service sector, are experiencing right now. And maybe in a couple of weeks they’re going to realize, “Hey, I can’t pay all of my bills right now." So I want to talk about that with you, Liz, because this is going to be really hard, it’s going to affect a ton of people. And Liz, I know that you wrote an article literally titled “How to Pay Your Bills When You Can’t Pay Your Bills.” So what would be your advice here?
Liz: You have to do triage, which means you have to put the most important things first. And that’s the essentials. That’s the food you eat, the shelter, the roof over your head, lights, heat, transportation, if you need to get to work or you need to get to the doctor or whatever it is. So those are the essentials you need to protect no matter what. This is important to remind people because when they do fall behind on their bills, collectors start calling and they panic and they pay whoever’s being the nastiest. You really need to put your family, put yourself, first and cover the most essential things. And then after that you do a triage again on the rest of your bills. Which ones have the biggest consequences for not paying? Which ones have some leeway? Student loans, for example, typically have some kind of forbearance or deferral that allow you to get away with not paying for a while.
Lenders typically have been a lot more responsive in bad times to letting people switch payment plans, or put off a payment or something like that, but you need to be in contact with them, you need to be talking with them. If you just stop paying, you may have passed up some sort of program that could help you and you could have hurt your credit for no good reason.
Sean: Yeah, this is one of those things where you have to do the work before the due date. But one thing that I’ve been pleasantly surprised to see in the past week is that a lot of the creditors are actually putting out programs to get ahead of this and they’re saying, “Hey, we realize that things are pretty challenging right now. If you can’t pay your bills, give us a call." But you do have to make that call.
Liz: Yes, absolutely. We talk in another podcast about how you can pay the IRS if you can’t pay the IRS. So, that’s the other thing that’s coming out that people are grappling with. If you do have a tax bill that you can’t pay, again, there are payment options, so don’t hide, you’ve got to seek these out, but it could really help.
Sean: They want their money and they want to be able to work with you and have a good relationship with you. So it takes being proactive, which is, yeah, probably the last thing you want to do when you’re fighting a cold and are worried about getting some horrible illness. But it takes about 10 minutes. Just give them a call and try to work this out because the last thing you want to do is go into default and ruin your credit score, which will make things harder in the future if you do need a new line of credit.
Sean: Another thing that I want to turn to right now is people’s investments. There’s been a lot of anxiety around retirement accounts. We’ve seen the stock market really take a nosedive in the past couple of weeks. I’m wondering how you think people should think about this and what people should do if they’re thinking about just totally pulling out.
Liz: What’s happening now with the stock market and the reason it’s so volatile is that the people who do the trades, the investors, are looking ahead and going, “This is going to have an impact on the economy and we don’t know how much." And the stock market hates uncertainty so that’s why you’re seeing it go all over the place. If you are not retiring tomorrow, then this is basically noise to you. What’s happening day to day, month to month, doesn’t matter. What matters is what happens over the long run, the next 10, 20, 30 years. And we have an incredible ability as human beings and as a nation to bounce back. So I think in the long run, our prospects are great so I’m going to stay invested and I’m going to try not to pay attention to the noise. If you are about to retire, it’s a different situation. Get yourself to a fee-only, fiduciary, certified financial planner. Have another objective set of eyes on your retirement plan to make sure that it still makes sense.
Sean: OK, yeah, that makes sense. It’s another one of those instances where you need to control what you’re consuming so you don’t work yourself into some sort of anxious state where you end up pulling out your investments that could harm you 20, 30 years down the line.
Liz: Well, what we noticed, which was really interesting, is a lot of people dived into the market. We had a lot of traffic coming to the site initially when the stock market went down the first time, and I think there were a bunch of people sitting on the sidelines going, “OK, here’s my buying opportunity." And then the floor fell out from underneath them and they’re like, “Agghhhhh." But this is just part of being an investor, this stuff happens and we’ve had bear markets before, we’ve had major corrections before. It does bounce back. For the people that are still sitting on the sidelines it’s like, you’re not going to be able to catch it before it starts running up, and when the stock market does rebound, it tends to do so so fast, you’re going to miss most of the gains.
That’s why every financial expert who’s worth their salt is telling you to just stay the course, have an asset allocation, keep your investments going and try not to look at them.
Sean: Turn off the news and read a book.
Sean: Put on some popcorn. All right, great. One last thing I wanted to touch on is travel plans. A lot of folks don’t want to travel right now, but maybe they have pre-existing plans to go to Machu Picchu or who knows where. But the good news is that a lot of airlines are actually making accommodations and waiving cancellation fees, but the policies are changing on a daily basis it seems. So we actually have a link on our show notes post at nerdwallet.com/podcast to an article that is just regularly updated with different airlines’ cancellation policies. So if you have travel coming up, check that out and make sure that you again are taking a proactive approach to managing any plans that you might have coming up.
Liz: I’ve been kind of astonished, actually, because we’ve been living with these awful change fees and non-refundable deposits and finger shaking, and to see all these travel providers acknowledge reality is astonishing and it’s like yeah, at least they’re doing that.
Sean: All right. I think that is all we have time for. For folks that are getting worried out there, a little financially uncertain, know that you’re not alone, but know that there are some steps you can take to make this tough time a little bit easier. And with that, let’s get to our takeaway tips. First up, focus on what you can control, not what you can’t. Second, if you can’t pay all your bills, focus on paying the essentials: shelter, food, utilities, transportation. Lastly, during big market swings like we’re seeing right now, focus on the long term and ignore the day to day swings.
And that is all we have for this episode. Do you have a money question of your own? Turn to the nerds and call or text your questions to (901) 730-6373 that’s (901) 730-NERD. You can also email us at [email protected] and also visit nerdwallet/podcast for more info on this episode and remember to subscribe, rate and review us wherever you’re getting this podcast.
Liz: And here’s our brief disclaimer, thoughtfully crafted by NerdWallet’s legal team. Your questions are answered by knowledgeable and talented finance writers, but we are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.
Sean: And with that said, until next time, turn to the Nerds.