From the Editor’s Desk
Preparing Financially for the Aftermath of COVID-19
Hello to all my Frugal Friends!
I received the following email about the virus situation.
Just wondering if you have any advice for self-isolating folks. I’m immunocompromised and in my 70s, so I stockpiled nonperishable groceries and went into my shell well before the hoarding frenzy. I go out only twice a week to my P.O. Box for mail, and on one of those trips I pick up groceries I’ve ordered online. Sometimes I also grab takeout from my little mom-and-pop neighborhood Chinese restaurant, good people who don’t deserve to go under. Of course I’m not spending nearly as much as I did before, but I have to resist the temptation to buy online. I have some sources of free downloadable books and music, so I keep myself busy.
What is the best thing to do with those $1000 checks that may be coming to us? And how do we prepare for the inevitable recession with drastic drops in interest rates? All of our savings will be worth nothing at a time when they’ll be most needed.
Thanks! Stay safe and well!
Jessie in SD
Really good questions. And probably ones that don’t have a single, definitive answer. But let me try to do the best that I can.
First, this is the 3rd or 4th major stock market meltdown I’ve seen in my adult life. I was a CFP on black Monday in 1987 and a budding online entrepreneur in 2001. I’ve also experienced a similar number of serious recessions. Some more or less severe.
So one thing that I can say with some degree of certainty is that unless the death rate goes into the hundreds of thousands in the U.S., the economy will rebound. It will take awhile, but it will come back. Once the virus is contained, 300+ million people will need to buy essentials and begin life anew. There will also be some pent up demand for everything from movies to automobiles.
The real question is what do we do in the meantime. I’m not a doctor or scientist so I won’t presume to tell you how to keep safe from the virus. Personally, I’m taking reasonable steps but not panicking. But you should do whatever you think best.
As to finances, there are some short-term steps you can take. First, if you’ve lost income, you’ll be glad that you have an emergency fund. Now is the time to use it.
But I wouldn’t use it to buy a 6 month supply of toilet paper. Even under the worst of circumstances I expect that basic necessities will be available. You might need to wait a day or two, but the shelves won’t remain empty indefinitely.
Contact your creditors. If you owe money on your credit card, auto loan, mortgage, etc., talk with the lender. If you’ve been consistent on making payments, they don’t want to foreclose on you. I expect that many will be willing to work out some type of delay in payments. It’s to their advantage to do so.
Now might be a good time to refinance your home or auto loan. Rates are about as low as they can go. If you have good credit, consider a refinance. And, instead of just lowering your payment, think of keeping the payment the same, but reducing the length of the loan.
Don’t panic sell investments. Not surprisingly, the worst time to sell stocks is when everyone is panic selling. The time to sell was weeks ago. Unless you need the money now, you’ll be best served by holding on to your stocks. When the economy recovers, so will the stock market. It won’t be immediate, but it will happen.
Conserve cash where you can. Normally I’d be encouraging you to take extra cash to pay off any debts, fund your retirement account or build up that emergency fund. But now may be a time to keep that cash handy.
Bank any government checks you get. Don’t worry that you’re not earning a lot of interest on it. The difference between 0% and 3% interest over a year is just $30. Right now, flexibility is more important than getting maximum interest.
And, if you have any CD’s maturing, now is not the time to go long. Keep your maturities short.
Don’t be afraid to ask for help. We’ve all needed help at one time or another in our lives. There’s no shame in asking. The person who helps you today may need your help tomorrow.
Finally, if you’re a person of faith, now would be a good time to pray that the spread of the virus would be contained and that a cure would be found.
Keep on Stretching those Dollars!
Will You Be Prepared?
Hello to all my Frugal Friends!
I was having breakfast with two friends when the topic of inflation came up. One was retired and considering investing in an annuity to provide some monthly income. The conversation went a little like this.
Me: A concern that I have about annuities is inflation. That unless they’re properly indexed, the promised income could be seriously eroded by inflation.
Friend: The investment advisor said that inflation was running about 2 percent.
Me: Yes, that’s been true for the last 20 years or so. But remember that we’ve had recessions in 2001 and 2008. And slow growth for much of the last 20 years. We’re old enough to remember the double digit inflation of the late 70’s. That could easily happen again.
Friend: I’m 71. My wife and I probably won’t live long enough for it to make a difference.
Me: You might be surprised. Stats show that if a couple reaches 65, that there’s a 50/50 chance that at least one of them will live to see 90!
The conversation turned to how inflation could reoccur. I mentioned economist Milton Friedman’s study on runaway inflation. My friend had just returned from over 40 years in Zimbabwe. He pulled a bill from his wallet. The banknote was millions of Zimbabwe dollars. My friend had lived through hyperinflation. He said that inflation had gotten so bad that people just tossed those bills on the street and walked on them.
Why do I share this conversation? Because we need to all remember that the recent past isn’t the only possibility. Not only for inflation, but other economic events. I’m old enough to remember 20 cent gasoline, 15 percent inflation and 12 percent mortgages. If you’re 40 or younger today, you’ve never experienced that. And it might seem like it’s not possible for it to happen. The truth is that it can happen again. And, you’d be wise to be prepared if it does.
Finding a qualified investment advisor can help you be prepared. A good advisor is helpful whether you’re saving for retirement or living in retirement. That’s one reason I’d advise you to read Do Investment Advisor’s Credentials Matter? Enough said. /p>One last thing. A reminder that we have two Facebook groups set up. One for After50Finances and a second one for The Dollar Stretcher. I’d be grateful if you paid them a visit and joined them. You’ll be glad you did!
Keep on Stretching those Dollars!
About the Author
Gary Foreman is a former financial planner and purchasing manager who founded The Dollar Stretcher.com website and newsletters in 1996. He's the author of How to Conquer Debt No Matter How Much You Have and he's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money, Credit.com and CreditCards.com. Gary shares his philosophy of money here. Gary is available for audio, video or print interviews. For more info see his media page.