The Covid-19 pandemic is impacting everyone. From the way we shop to seeing family and friends (thank you FaceTime and Zoom). We are seeing the devastating effects of the virus on young, healthy people and way too many elderly especially in long term care facilities.
Just like the virus, our financial security hit many of us quickly without warning. Ironically, a pandemic is causing furloughs, layoffs, reduced hours and pay, to our nurses and other healthcare workers. A profession we considered “recession proof.” Here are some tips if you are dealing with furloughs, financial uncertainty, or reduced hours.
1) File for unemployment:
Fill out the application on your state’s unemployment website. The amount varies considerably depending on the state. The maximum is $1,495 per week in Illinois while only $235 per week in Mississippi. The maximum length of time also varies. Currently, the CARES Act gives you $600 weekly on top of the amount your state provides (until July 31st), extends your state’s unemployment an extra 13 weeks, and incentives states to waive 1 week waiting periods.
You may qualify for replacement income if your hours were reduced. However, the amount is quickly phased out. If you have the choice between reduced hours every week or flexible furlough (work a few weeks, take one off), take option B. With the CARES act encouraging states to waive 1 week waiting periods, you can collect unemployment for the one week furlough.
Be sure to follow the states rules and regulations so you get your check every week. For example, Minnesota requires you to file a quick form every week saying you’re still unemployed. Minnesota’s website estimates your unemployment benefit by entering in your social security number. Check your own state’s website for the resources!
2) Use your emergency savings:
We always hear how important saving 3-6 months expenses in an emergency cash fund. Now is the time for this fund to shine! Supplement your unemployment income with your emergency fund to meet your monthly expenses. Unemployment income may allow your emergency fund to hold you 9-12 months instead (or you’ll have less to replenish when you resume working).
If you don’t have an emergency fund, the world is not ending. In fact, 63% of Americans cannot cover a $500 emergency with savings (much less 3-6 months of expenses). Once you resume working, make this a financial priority. You’ll be thankful to be in the other boat next time!
Boring but important even if you’re not facing a furlough. Of course, it will let you know your monthly spending (we all know the approximate amount). More importantly, budgeting highlights the easy cutbacks and how much it will save. My 5 dollar Grande Latte every work day will now have to pay the internet bill.
The funny thing I’ve learned about budgeting, is I naturally save more and spend less without feeling like I changed anything. I saw this first hand with an exponential growth on our savings accounts. It paid my way through graduate school.
4) Federal student loans:
If you have federal student loans (most are eligible), payments are paused and interest is not accruing until September 30th! This is automatic without the borrower doing anything. If you’re going for Public Service Loan Forgiveness (PSLF), these no payment months count towards the 10 year requirement. This is huge when facing pay cuts or furloughs.
If you have private loans or refinanced federal loans to a private loan, your loans still need to be paid. Bummer! If you’re considering refinancing to a lower interest rate, wait until after September 30th to enjoy Uncle Sam’s interest vacation.
5) Temporary job:
If you are facing a long furlough and live in a state with low unemployment compensation, you may want to consider a temporary job. Not ideal but may be a necessary bridge during these tough times.
6) Home equity line of credit (HELOC):
You can use a home equity line of credit as emergency cash. Think of it as a credit card with your home as collateral. Rates are variable but currently around 4-5% depending on lender and your credit history. I would do this after exhausting my emergency savings but before racking up credit cards or withdrawing money from my retirement accounts. If the lender does not charge a fee to maintain a HELOC, I would apply for it now to add another tool to your toolbox.
7) Withdraw from your retirement account:
The CARES Act allows you to withdraw up to $100,000 from your 401k/403b/IRA retirement account without an early withdrawal penalty (normally 10%) and pay the income tax on it over 3 years (instead of all at once). It must be related to a coronavirus issue (getting the virus, furloughed, etc).
Only use this option if you’re down to your last dollar. The markets are down about 25% so you’re selling low. If you intend to repay your withdrawal, the markets may recover by then. Not fun to sell low and buy high.
8) Debt payments:
Credit cards: Credit card companies are providing temporary payment modifications depending on your card. At the very least, make sure to always pay your minimum payment on time to keep your credit score intact. I would take money from my retirement account before using my credit card though. 17% interest hurts. It is tough to get that return in the market.
Home loans: You can request forbearance from your mortgage company (you pause payments) for up to 180 days. Find out how repayment works. You may need to pay 6 months of payments on day 181. Ouch! This is another, “I’m on my last dollar” situation. If considering, check out the Consumer Financial Protection Bureau.
Auto loans: Temporary payment modifications may be available depending on your auto loan company. Consider being like the Physician on Fire and drive a beater if your loan is less than your car’s value. No loan now.
To those furloughed: I hope these tips give you some direction and a plan. More importantly, I hope you can use your skills to do the incredible work of caring for patients soon!
To everyone else: Be thankful for your current job security. Create a preparedness plan. Like in medicine, when you’re prepared 9 times out of 10 you don’t need it. When you do need it, you’re glad you’re ready.
We will all get through this together! Stay healthy and strong!