Budgeting is often at the heart of homeownership. Even before owning a home, we see that our clients are structuring their fiscal life into a budget. That way they can save up money for a down and expenses. Then, they can own that special house. However, budgeting in a time of crisis is quite different than figuring that regular household budget. This week’s blog is will be addressing the financial issue of making a budget during a crisis. This is critical due to our quarantine crisis.
Budgeting for the Elephant in the Room
Listen, there is an elephant in the room. In this case, the elephant symbolizes the coronavirus that causes COVID-19. That expression means there is a topic in the room everyone wants to talk about but many are trying to ignore. So, this leaves a lot of businesses in a quandary about topics for their blogs. And there is a lot of misinformation out there and online.
We suggest that you rely on CDC.gov for all matters of medical advice. However, our specialty is the financial world. So, once you know that you should wash your hands, stay at home and step away from your door, it’s time to sit down with your budget.
Palm State Mortgage is bringing you some budgeting tips. These ideas should help you deal with the money crisis your family might be facing now or in the weeks to come.
Finances, Families and the Elephant
Thus, let’s look at the current quarantine situation. The crisis caused by the coronavirus has changed our lives. We have shut down much of the U.S. economy. Restaurants, travel, bars, non-essential businesses of all kinds.
Palm State Mortgage realizes that financial uncertainty makes careful budgeting crucial. During this time of financial uncertainty, it’s more important than ever to create a budget that will actually work.
Don’t Let the Elephant Eat Your Money
That being said, let’s try to put some steps in effect to discover the fine financial art of Crisis Budgeting.
First Step—Figuring the Funds
- The first step in any fiscal crisis is to “take stock of your current income situation…” Are you looking at reduced hours? Has the pandemic already cost you a job? We know you might be shell-shocked, but stop and get a pencil and paper. Notice we did not say to get computer software or a financial advisor or a flowsheet. This is a time to engage with a pencil and a scrap pad.
- Thus, you need to put a number on the funds that are and soon will be, coming into the budget. Once you have that number, we ask you to think about it seriously. How could the coronavirus and social distancing affect your income in the near future? If you know your job is at risk, make a contingency plan for your budgeting process.
Step Two: Benefits and Blessings
Now it’s time to count your financial blessing. Look into money you might have saved for a rainy day. (Who could have expected it to “rain” a deadly virus.) And along with income, write down what the money the government might be giving stimulus packages.
(We might be giving you this advice a little early, but the federal government is working on packages that will help us in our struggle. What we expect this to do is to expand unemployment benefits.
- It will probably waive work requirements.
- The package will possibly enlarge paid sick leave programs.
- We all hope the government will be sending out hardship checks to help us all get through this situation. “If the government decides to provide cash payments, you can also factor those in when determining your income.
- A one-time cash payment can be used to pay immediate bills or shore up your emergency fund, and regular payments provided throughout the crisis. This should be considered when setting your monthly budget.
- And if you were already budgeting for paying your income tax, remember the deadline on that has been changed to July 15. That frees up your money a little longer, although it is a little like borrowing from yourself.
Points to Ponder about Your Unemployment
If you do need unemployment benefits in the crisis, do you know how much you will get? You see, you’ll only receive a portion of your true wages. “Specific formulas vary by state, but you won’t get the entire amount you were earning. You should find out from your state’s unemployment office how much income your benefits will bring in so you’re prepared.
Food aid is likely to also be expanded in response to the COVID-19 crisis. If you qualify for it, factor the aid you’ll be entitled to into your budget as income since the assistance you get buying groceries will free up some of your money for other uses.
Step 3. Hard Look at Essential Expenses: Basic to the Bone
The latest panic shopping has added to our stress in the coronavirus crisis and wrecked a lot of budgets. With the government’s assurance, we don’t need to stock up like that. Instead, we encourage you to be sensible. Our stores can’t stock it as fast as we can hoard it. Therefore, your next budgeting joy is to figure out the bills you must pay during the coronavirus crisis. This includes bills such as:
- Rent or Mortgage Payments
- Grocery costs
- Other large ticket loan items, like cars.
- Childcare, if you are able to go to work — including the cost for school-aged children as long as schools remain closed.
- Utility payments: Keep in mind that most utility companies have vowed will not be shutting off utilities during the coronavirus crisis. However, they are not forgiving your payments. They are only delaying them. It’s wise to keep paying if you can. Otherwise, there will be huge bills to face when the crisis is over.
- One little light at the end of this part of the budgeting tunnel: Did you know that interest payments on student loans have been waived? Of course, you are pausing payments, which means it will take longer to pay off the loans, but you will have more money now.
- Now is the time to see if credit card companies will work with you to waive late fees or design a new payment plan.
Step Four: Healthcare and Emergency Savings
We know so many who live from paycheck to paycheck. The coronavirus pandemic is a wake-up call. Think of all the ways you need to pare down expenses so you can build up a little money for a medical emergency. No one knows how long this pandemic is going to continue. Bare the budgeting down to the bone so you can be ready if emergency conditions occur.
- Every extra dollar has a designated job. And if it doesn’t, then designate it as an emergency healthcare dollar.
- We hope you are saving an emergency fund. Experts tell us that means you should save six months of living expenses. At this time, we might recommend you even save for a larger number of months.
We are recommending that in this budgeting step, you check on your health insurance benefits. Now, plan to save enough for healthcare so you can cover your co-pay and other out-of-pocket expense. Save until you have enough to cover the maximum out-of-pocket limit.
Step Five: Beware the Shortfalls!
Sometimes after putting together your budgeting plan, you find expenses exceed income in an emergency.
- What, if after all four of the above steps, you find that your expenses exceed your amount of income? You see this, even after factoring in any unemployment benefits or other government assistance. In financial jargon, this is a shortfall. You’ll need to fix it with careful budgeting of extra income and side hustles. Figure out how to deal with the shortfall. For example, there are still some companies such as grocery stores and food delivery services hiring? They are suffering increased demand due to COVID-19.
- Check your unemployment benefits, due to state rules. If you don’t earn too much, you could have this money plus your unemployment benefits.
- We never thought we would recommend a credit card, but you could use a 0% APR credit card to cover some of your purchases. However, We believe that with careful budgeting, you can make a little credit work for you. See if you can “qualify for a card offering no interest for a year or longer on purchases, you’ll have time to try to pay off what you’re borrowing without owing extra for interest. Palm State Mortgage reminds you this can be a dangerous path. Just remember that you need to pay that little card off as soon as possible. Minimum payments are almost never a good thing.
Don’t Let the Elephant Eat Your Money
At Palm State Mortgage, we believe proper budgeting empowers you to minimize the COVID-19 damages to your finances.
Our magic formula for the moment is three-fold:
- Cut spending,
- Find ways to take advantage of benefits,
- Try to grow your emergency fund.
With careful budgeting, we can turn the tables on that elephant. How do you eat an elephant? One bite at a time!
On the one hand, we want you to anticipate the best-case scenario for both your health and your finances after the coronavirus crisis. On the other hand, we hope you will realistically, be budgeting for the worst.
A COVID CRISIS BLESSING Palm State adds a special message to close our budgeting blog. Stay home, wash your hands and enjoy your family at this fearful time. Although we are a financial institution, we believe that life is more precious than treasure. Therefore, we close with a simple blessing for you and your family. There’s no budgeting on grace or kindness or compassion.
“May the road rise up to meet you. The wind be always at your back. May the sun shine warm upon your face; the rains fall soft upon your fields and until we meet again, may God hold you in the palm of His hand.”