If you haven’t already done so, it is important to take the time to sit down and create a detailed 90 or 120-day personal finance plan. The goal of this plan is simple: you need to protect your cash! Even if you’re fortunate enough to not be experiencing any problems right now, there’s no way to predict how long the economy is going to remain in lock-down mode, so it is absolutely vital to make a plan to preserve your cash for as long as possible. Cash is the ultimate in liquid assets and will give you greater flexibility when it comes to making strategic decisions during the uncertain time ahead.
We need to stress that an educated guess or estimate of the state of your personal finances is not good enough. The only way that making a 90 or 120-day plan to weather this storm is going to succeed is for you to get out a calculator and tally up concrete numbers. It may take you a few hours or you may even have to set aside an entire weekend to get your hands on cold, hard numbers, but this is a task that simply cannot be delayed, or hand waved away.
Right now, it should be easy to cut down on your living expenses. After all, you shouldn’t need much more than food and medicine. Anything else needs to be trimmed wherever possible, especially things you cannot possibly use right down during the shutdown like a gym membership, lawn care and gardening services, or a country club membership.
Spend the time going over your bank and credit card receipts to see where your money is going. Maybe you’re spending a lot of money on restaurants or home-delivered food. Maybe you’re buying non-essential items like clothes, jewelry, and accessories. Maybe you buy a lot of books and gadgets for the kids. Wherever your money is going, it’s time to take a long, hard look at it and see where you can make deep cuts.
Another great tip is to use points, store credits, or gift cards wherever possible. Remember, the goal here is to minimize spending your cash. The goal during the next 90 or 120 days is to hang onto your money and prevent it from going out the door.
This is not the time to be making extra principal payments or paying more than the minimums on your outstanding debts, although that is sound practice during normal times.
For the next 90 or 120 days, our advice is to trim down your debt payments to the bare minimum. But make sure that you leave your auto-pay function for paying your bills on time because the last thing you want to do is incur late charges.
Furthermore, be extremely wary about taking on new debt. Now is not the time to take out new lines of credit on your home, sign up for a new credit card, buy a house or apartment, buy a car or boat, or sign (or co-sign) a new lease. The goal here is to reduce all contractual obligations to third parties to an absolute minimum.
A lot of people have their banking software set up to automatically transfer income from a checking account to a savings account. During ordinary times, this is a smart move. But for the next 90 to 120 days, we recommend disabling that feature.
Your current savings can be thought of as an emergency reserve that, hopefully, will never have to be touched. For the next 90 to 120 days, we recommend safeguarding all your income in a high-liquidity state such as your checking account.
The IRS has kindly delayed the filing deadline for paying 2019 taxes to July 15, 2020. If you haven’t paid your 2019 taxes already, it may be a good idea to delay doing so until the summer when, hopefully, the coronavirus crisis has calmed down, and things start returning to normal.
The new federal CARES Act has just been rolled out, so it’s also worth delaying paying your 2019 taxes until you and your accountant can review it to see if there are other ways to save money. The CARES Act, for instance, has increased the withdrawal limits and waived the penalty fees for some types of individual retirement accounts (IRAs) and pre-tax savings plans.
In addition, look and see if it might be appropriate to reduce your projected quarterly tax payments for 2020, especially if it’s likely that your income is going to be reduced due to the coronavirus. It’s better to underpay rather than overpay right now. Later, if necessary, you can make up the difference.
Charitable contributions are a deeply personal matter, but it is worth analyzing your cash flow to make sure that you are giving at an affordable rate. That being said, if you are in a position to be generous, there are many people out there suffering right now who can definitely use your help.
Few people like taking the time to sit down and tally up lists of numbers, but it is vital to get a tight rein on your cash flow during this crisis. Wherever possible, try to make this a team effort so be sure to involve your spouse and family! Do the hard work and tally up all the figures for all the categories so that you know where absolutely every penny is coming from and where it is being spent.
When you have maximum control of your personal finances, you’ll have maximum control over how to weather this unprecedented storm that is currently devastating the country. Now is the time to keep your cash dry!
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