This awful virus caused a humanitarian crisis that quickly became a financial crisis in households throughout the world. The priority is to keep people alive, and there aren’t enough kind words to describe the men and women in the medical field who are working to that end.
In the blink of an eye, the economy’s shutdown sent millions of households from steady paychecks to the unemployment ranks. From record employment numbers, we plummeted to 17 million unemployed in record time.
It felt as if the economy was cruising full speed down the highway and a brick wall materialized in front of it from out of nowhere. I was disappointed, from a financial perspective, by how many households were caught without a rainy-day fund.
I’ve always encouraged people to have enough money set aside for at least three months worth of expenses. You never know when a crisis might arise, like now. Realistically though, far too many households don’t have cash reserves because they’re barely surviving from paycheck to paycheck. That’s a recipe for late or missed payments.
But while I understand why there are so many families living check to check, there’s something I don’t quite fathom. Why are so many who do have the resources spending so much more than their take-home pay? Frankly, it’s poor financial management and lack of discipline.
Most financial advisors have crossed paths with people who have significant income, but somehow manage to spend $1.10 for every dollar they make, regardless of what they earn. It's called living beyond your means.
I saw this during the crisis of 2008-9, and I see it happening again. Once we get through this health crisis, we need to strive to get everyone back onto the financial treadmill. Especially those living paycheck to paycheck.
It will likely be difficult, but it’s important to work toward paying off overdue bills and building an emergency cash reserve. For example, if it used to cost $30 to fill the gas tank and it’s now $20, put that extra $10 in the bank instead of spending it.
Another example is what some people call the $5 Challenge. Simply stated, whenever you get a $5 bill in change, save it rather than spend it. Even with small amounts, a little discipline can lead to a meaningful number over time.
There are many programs and policies coming out of our nation’s capital attempting to jumpstart the economy once the health crisis passes. By now, most are aware that the government is distributing stimulus checks to households. There’s also a similar program geared to help small businesses.
Offered through banks, the objective is to help them keep their doors open and pay their employees. The business community’s demand for this program has been overwhelming.
I don’t like the idea of tapping into your retirement account early, but there are now special provisions where the10 percent penalty will be waived for early withdrawal if certain Corona related issues created a financial hardship.
There are even certain provisions that help current retirees. For example, Uncle Sam is waiving the 2020 required minimum distributions for those over the age of 70.
One thing is for certain: There will be no shortage of financial topics requiring in-depth discussions in the coming months.