There is hardly an area of our lives that hasn’t been affected by the coronavirus.
On the job, new protocols come out daily. On TV, new information (or misinformation) is dispersed daily. In the markets, volatility abounds. And, at home, our families wait anxiously for a return to normality.
With so much uncertainty in our economy, questions about your personal finances are sure to arise.
Here are five finance-focused questions (and answers) firefighters have been asking during the economic downturn:
1. Which bills do I pay first?
If your household income has been cut and bills are going unpaid, it’s time to triage your financial life. Without effective triage, a mass-casualty scene goes from bad to worse, and so can your personal finances.
First things first, take care of your food, shelter, transportation and utilities.
Food: Putting food on your table takes precedence over everything. Prioritize this first in your household budget.
Cut costs by preplanning your meals and making a list before you go. Also, give online grocery shopping a try.
You can keep track of your bill as you go, cut out impulse purchases, and not have to listen to your kids ask if they can have every brightly colored box of cereal in the aisle.
Housing: Whether you are a renter or have a mortgage, if you can continue paying, you should.
If you are having trouble making rent or paying your mortgage, contact your landlord or mortgage company immediately. You must communicate your situation and inquire about any options you may have. Landlords may be able to convert security deposits to rent payments or offer reduced rent.
Many mortgage companies are offering forbearance options that allow you to reduce or skip payments, without risk of foreclosure. But understand that you will have to pay it back when you can.
Transportation: Once things return to normal, you will need your vehicle to get back to work. Once your food and housing costs have been accounted for, if possible, continue paying your car loans.
If unable to make a full payment, communicate your situation to the lender, and try to make partial payments. They do not want to repossess your car. They want you to get back on your feet and keep making payments. So, communicate early and often.
Utilities: Thankfully, many utility companies and local governments have decided not to shut off services during this crisis. If you can pay your bills, do so. If not, once again, communicate with the appropriate agency and see what your options are moving forward.
Credit cards and personal loans: In times of crisis, these get paid last.
I am a big believer in paying off your debts – and remaining debt-free – but when it comes down to food on the table or paying off the Visa, food on the table wins.
If you get into a situation where you can’t make minimum payments, communicate with your lender, and do your best to make partial payments.
I suggest making partial payments proportionally relative to your total debt. For example:
- Credit Card A: $5,000 balance
- Credit Card B: $3,000 balance
- Credit Card C: $2,000 balance
Total: $10,000 balance
If you only have $100 left over to pay these bills, pay 50% to Credit Card A, 30% to Credit Card B, and 20% to Credit Card C.
This isn’t an ideal situation, but paying something is better than nothing.
2. What should I do with my student loans?
If you are a firefighter with federal student loans, the CARES Act suspended payments and interest accrual until October 2020.
So, what should you do with the money that was earmarked for payments? If you are struggling to make ends meet, you should use the extra cash for necessities, like food and shelter.
If you are keeping up with your bills and can afford to keep making the payment, you should do so. Make sure that your payment is applied directly to the principal amount of your loan, though.
Or, you could redirect that payment toward high-interest debt, such as credit cards.
3. Should I make changes to my investments?
In a perfect world, you would already have a long-term investment plan in place, and you could just continue right along with your plan. If you haven’t thought much about your investments before, you may be wondering if now is the time to do something.
The answer is, it depends. If you haven’t created an investment plan to reach retirement successfully, you should. Once you’ve created a plan, you can make the necessary changes to move you toward your retirement goal. But if you are invested appropriately for your time horizon, you should probably just stick with it and weather the storm.
4. Should I take money from my retirement accounts?
The short answer: No, unless it is absolutely necessary.
Einstein called compound interest the eighth wonder of the world – don’t interrupt it unnecessarily.
The CARES Act allows for coronavirus-related distributions from IRA, 401(k), etc., of up to $100,000 penalty-free. The distribution amount is spread over the next three years for tax purposes and can be repaid within that three-year window for a tax refund.
Your retirement savings are for, well, retirement. By tapping into those accounts, you are sacrificing your future wellbeing for the present. Sometimes, this is necessary. If you are facing bankruptcy and can’t feed your family, who cares about retirement in the moment? So unless the straits are dire, leave that money alone.
5. What should I do with extra cash flow?
Some firefighters are experiencing the opposite of a financial crisis. My wife is a nurse, and I’m a firefighter. We have both continued working as usual – and our expenses have been cut.
So what do you do with the extra cash flow from not dining out and not spending hundreds of dollars a weekend on kids’ sporting events? Pay off your debt!
If you are lucky enough to be debt-free already, save the cash into an emergency fund. If you’ve already got a fully funded emergency fund, you could save the cash into an “opportunity fund” to start a new business or another venture. And if you have no desire to start a business, increase your retirement savings!
Make smart choices
Whether you’ve been negatively affected and are struggling to make ends meet or you’ve found extra cash flow and are looking for ways to use it wisely, it’s important to consider your options and make smart choices based on your current situation. After all, personal finance is just that – personal.
[Read next: A firefighter’s guide to financial preparedness]
