If you have lost your job or experienced a temporary furlough or reduction in hour, you're no doubt re-working your financial plan. It's a situation many Americans are facing in the wake of the COVID-19 pandemic, which has triggered historically high unemployment levels.
You're probably rethinking short- and long-term financial goals, whether you're considering a major purchase like a home or aiming for early retirement. Instead, you're likely focusing on ways to cut spending and set aside any extra funds you can.
Here are tips to help you make every dollar go further, as you negotiate these challenging times:
1. Recalculate Your Baseline Income
When your income drops, whether it's the result of a global crisis or for any other reason, start by determining your "new normal" for income.
If you're still working but your pay or hours have been cut, you will need to factor in the difference with your spending. Say you have lost 30 percent of your income, where can you make spending cuts?
If you were laid off, you may be relying on unemployment benefits as your main source of income. The federal CARES Act provides an additional $600 a week in unemployment benefits for a certain period of time for workers affected by the coronavirus outbreak. (the exact time frame depends on the state in which you live.) You can try to set aside some portion of the additional money for future expenses.
2. Take Your Budget Down to Basics
Making your budget work when your income is reduced means pruning the nonessentials to cover things like housing, healthcare, food, utilities and transportation.
If your monthly income won't cover expenses, you will need to look for potential cuts and/or explore relief options. For example, you may be able to take a deferment or forbearance for student loan payments or request a hardship deferral of credit card payments. The CARES Act provides for a moratorium on evictions, as well as forbearance periods for homeowners with federally backed mortgages.
Keep in mind, however, that once any forbearance or hardship periods end, you'll have to make up the payments you missed which could mean revisiting your budget again.
3. Manage Your Debt Carefully
If you're still able to make payments to your debt following a lay off or job loss, review your debt payoff plan. Specifically, determine how much you can pay towards debt each month, which debts to pay off first and how long it will take to become debt-free.
Consider ways to make your debt less expensive so you can pay it off faster. For instance, refinancing student loans at a lower interest rate or using a 0 percent balance transfer for credit cards can make debt less expensive.
If you own a home and have job stability, you may also consider refinancing your mortgage while interest rates are low. That could lower your monthly payment and reduce what you pay in interest
4. Prioritize Savings
Saving money may seem near impossible if you've experienced a pay cut but doing so can benefit you financially, even if you can only save small amounts. When you have an emergency cushion in the bank, you're less likely to have to add to your debt by using credit cards or loans during a financial crisis.
Here are some ways to grow savings when money is tight:
- Save your spare change whenever you're paying cash.
- Use cash back apps to earn cash rewards when shopping online and deposit the money into savings.
- Apply any additional monies, such as tax refunds or stimulus checks, to your savings if you don't need the money to pay bills.
Budget, Savings Matter Even More Now
Saving money and spending less can help you stay afloat during tough financial times. And the more you can save now, the better prepared you'll be for the next financial emergency.
All content provided in this blog is supplied by Rebecca Lake and is for informational purposes only. Barclays takes no position as to the views, and makes no representations as to the accuracy or completeness of any information contained in the blog or found by following any link within this blog