How Best to Protect Your Income in Challenging Times?

By Sherry Hao, Controller, U.S. Money Reserve

It takes more than just an emergency fund.

Because of the global pandemic, we’re all a bit less financially secure. COVID-19 has wreaked havoc on global and local economies, contracted the job market, and changed the way we physically work today. It can seem like a difficult and scary time, but with a few smart moves, you can protect your income and your savings during these challenging times. Whether you’re facing a job loss, a tough money situation, a medical cost, or a hefty emergency bill, here’s how to make the most of your finances during difficult times.

Get a Plan into Place

Financial experts often tout the value of having a budget in place. It helps you keep track of your spending, get your head around how much money is actually coming in, and save for long-term goals like retirement or purchasing a home. I’ve written a lot about how to set up and manage a budget for your business and your family, and there are many different types of budgets that you can use to suit your needs. The trick is to pick the one that works best for you. Once you have the right budget in place, you can better understand how you might need to change your spending if you’re facing a difficult financial time.

While budgets help you get control over your future spending and saving habits, they can also help you find places where you might be leaking cash. Small leaks like subscriptions you forgot about or no longer use or recurring charges can add up to a lot of money saved over time. Say, for example, you have streaming services that you don’t use or need regularly. You can trim back to save a little bit of money. If you have a regular budget for ordering takeout or, in places where you can, going out to eat, then you might consider contracting it to meet other needs. Take a close look at where your money has been going so that you can decide what is necessary and what isn’t during this time of contraction. You can consider these type of cuts “small wins” to help you cover vital things like food, shelter, and transportation for you and your family.

The best way to get a handle on this kind of small spending is to go over the last few months of bank statements and credit card statements with a fine-tooth comb. Ensure you know what each charge is and determine whether it’s necessary to keep up as you go forward. Once you have gone through your statements, you know where you might have some wiggle room to save your money.

Choose the Right Expenses to Trim

How do you know which expenses are the right ones to trim and which ones aren’t? It all comes down to organizing your needs. Every one of us needs food, shelter, and transportation these days, and most of those costs are relatively fixed. These are the essentials we all need to cover to keep our families safe and comfortable. These are the costs you should prioritize when looking for places to trim your budget during challenging times. While you can work to negotiate them (see the section below), you will need a plan in place to make sure you can continue to make your home and vehicle payments on time and feed your family.

In addition to these basics, we all need to be able to cover things like water, gas, electricity, insurance, cell phone service, and internet connectivity, too. These are also essential to our lives in the modern era.

Beyond these items, however, there is some wiggle room. Try to find things in your budget that can make a significant impact on your savings. For example, suppose you get a regular meal delivery service (say Blue Apron, Purple Carrot, or another). In that case, you can very likely save a bundle by purchasing grocery items at the store rather than relying on the convenience of these services, which tend to charge a premium. Notice how much online shopping you’re doing these days and examine whether you might be able to cut back on those expenses in any way.

Negotiate Your Bills

One fundamental way to protect and manage your income during these difficult times is to negotiate your recurring bills so that you can continue to make payments on time. Your credit rating is one of the most critical factors in your financial life that can impact your financial future for many years to come. It can also affect your ability to get a new job or get additional credit should you need it. It’s vital to your financial wellness to maintain a strong credit score, and the best way to do that is to pay your recurring bills on time.

Recurring bills include things like your home mortgage or rent, insurance, car payments, and credit card bills. To keep your credit in good standing, you must ensure that you pay the minimum payment or payment due each month. Should you fall into arrears, you can face many long-term financial problems that can make this tricky time of contraction a lot more stressful.

One thing to know about these recurring payments is that, while you must pay them on time every month, you can negotiate everything from your interest rates to your minimum balance. You can also refinance your home or vehicle to reduce the payments you need to make as you navigate these difficult times. However, it is essential to know that if you do decide to refinance a loan, your credit will be impacted since banks will need to run a credit check to determine what rate they can extend to you.

The best way to negotiate things like your credit card rates, payments, or even medical bills is to call up your bank or credit card issuer and talk to customer service about adjusting your payments. If customer service can’t help you, then take your request up the chain of management until you get someone who has the power to assist. If you let the bank or credit card issuer know that you’re struggling to make payments, they will generally work with you to adjust them so they are more manageable.

One thing to note, as Mint points out on their blog: “Asking to skip payments or lower your monthly payments should only be a last resort,” says credit card expert John Ulzheimer, formerly of FICO and Equifax. Otherwise, you might be unnecessarily stretching out the payback period of your loan. “To the extent you can continue to make minimum payments without causing financial stress on you or your family, do so,” says Ulzheimer. “Don’t take this as an opportunity to skip payments that you can easily make. If you can help it, you’ll want to avoid extending loans by deferring payments to the back end.” Just note the fine print and ask questions if you don’t understand the financial terms or what you are responsible for paying back.

Develop a New Revenue Stream

If you have the time and the know-how, the current environment could be the perfect opportunity to turn a skill or passion into a money-making endeavor. For example, if you collect antiques and restore them, perhaps you could start selling some of your work on platforms like Etsy or eBay.

Perhaps you’re skilled at writing code, designing websites, or coaching and consulting. You can use job-seeking platforms like LinkedIn to advertise your abilities and connect with people who might want to hire you for the work on a part-time or contract basis. You can also find small jobs and part-time work on platforms like Fiverr, Upwork, and others. While the rates aren’t fantastic on these platforms, they can offer you some stopgap income to help ensure that you’re covering your basics by making the most of your skills.

While doing any of this takes time and patience, it’s worth considering other ways to bring money in to help cover your needs.

Use Your Emergency Fund

If you do get into dire straits and need some help, it’s time to dip into your emergency fund. This is the money you’ve put aside that (theoretically) should cover roughly six months of essential expenditures like housing, food, transportation, and communication. If you do find that you must tap your emergency fund, be sure that when things become flush again, you replenish it, too. If one thing is for sure, it’s that the world has been profoundly changed by the current global pandemic — and this experience has only underlined the fact that we all absolutely must have an emergency fund to help sustain us through these difficult times.

If you don’t have an emergency fund, there are other ways to access cash. You can look at government assistance programs like unemployment if you lose your job, and you can leverage some of the larger items you own if you need quick cash. For example, you can borrow against your home or car if you need a fast, one-time cash infusion. However, there are some significant downsides to doing this since you’ll be moving more deeply into debt and potentially dinging your credit as a result. It’s essential to do your research, understand the risks and rewards of doing such a transaction, and assess whether that option is right for you and your family in the long term well before signing any loan agreement or leveraging yourself further.

Know That This Phase Won’t Last Forever

While the pandemic has undoubtedly taken its toll on our collective mental, physical, and financial well-being, it’s essential to realize that this phase won’t last forever. It may seem like the last year has dragged on, but eventually, there will be an end to this crisis. Keeping a positive mindset is important when you face difficult challenges because it helps you become resilient, and it can help you discover new ways to make your financial future more stable. You never know what opportunities could pop up as the economy continues to change and evolve to adapt to the new COVID-19 world, and those opportunities could spell financial success for you and your family as long as you are in the right head space to see them. If you follow these six tips, you’ll likely to get through this challenging period with flying colors.