Living on a Lower Income: 10 Tips to Stay Financially Afloat Through the Covid-19 Crisis

All it took was a matter of weeks for the Covid-19 pandemic to turn what had been a prolonged period of low unemployment into a muddle of lay-offs, pay cuts, furloughs, lost income and overall unemployment levels not seen since the Great Depression almost a century ago.

Amid the considerable damage the global health crisis has inflicted on individuals, households, businesses, communities and entire economies, the loss of jobs, income and workplace benefits has been especially painful, leaving millions of Americans on tenuous financial footing as they scramble to pay their bills, cover their expenses, stay on track with their goals and generally keep themselves financially afloat.

“Income decline is tremendously hard in every respect,” says FPA member Katrina S. Soelter, a CERTIFIED FINANCIAL PLANNER™ professional with KCS Wealth Advisory in Los Angeles. “It impacts you emotionally, mentally, culturally, and obviously financially. There is no easy answer that will make the hardship magically disappear.”

There are, however, steps you can take today to blunt the impact of lost income, make the most of the financial resources you have on hand, and in the process maybe even put yourself on stronger financial footing for the post-pandemic era, whenever that arrives. Here, CERTIFIED FINANCIAL PLANNER™ professional members of the FPA offer suggestions to help you stay financially afloat during the coronavirus outbreak and its aftermath:

1. Take care of your mental health. Amid so much uncertainty about health, finances and the state of the world, it’s natural for people to experience a heightened level of stress, anxiety and fear. First, remind yourself that you’re not in this alone. Lots of people around you are experiencing the same thing. Seek counseling, use telehealth resources, and give yourself grace and understanding, Soelter suggests. Try keeping a gratitude journal, and make time for physical activity that’s free and gets your endorphins going. Connect regularly with people you care about, and don’t be afraid to share how you’re feeling. Chances are, they’re feeling the same way!
2. Take a hard look at your spending. Write down everything you spend your money on, then cut where you can, starting with things like gym memberships, online entertainment services and the like. “You will feel so much better,” says Soelter, “if you are able to live within your new income and it will relieve stress and worry to have a plan to do so.”
3. If you are struggling to cover your expenses and have an emergency cash reserve, now could be the time to tap it. Emergency funds are made for moments like these. Most financial professionals recommend maintaining a readily accessible cash reserve with enough to cover three to six months of household expenses.
4. Take advantage of external resources and support. Straining to pay expenses like rent, mortgage and the like? Many lenders and landlords are now offering (voluntarily or because they’re required to) flexible payment programs. Be sure you’re clear on the terms of that relief, such if you may be required to make a large lump-sum rent payment to make up for skipped payments. People who have lost their job during the pandemic should file for unemployment benefits immediately; in many states, those benefits have been increased for the short term, according to Soelter. It’s also worth searching Google for other forms of relief that may be available locally. “Your Google search should be specific to find what is helpful for your particular situation,” notes Soelter. “For example, if you have enough in your budget for your fixed expenses but are struggling to buy groceries, then type into Google, ‘Grocery help [location]’ or ‘Food assistance [location].’” Bottom line: Help is available, you just have to find it. “If you have an issue with paying a bill or an expense, there’s probably a program out there to help you find relief.”
5. Prioritize necessary expenses and hack your habits. “If you struggle to maintain your budget,” says Soelter, “do whatever you need to do to hold yourself accountable: freeze your credit cards in a block of ice, go to the bank to take out only the cash you need for the spending you are about to do, and only before that trip, use reverse budgeting and only transfer the amount you are about to spend from your savings to your checking right before you go to the grocery store, etc. Be militant. You'll feel better.”
6. Make hard choices if necessary. Moments like these can thrust difficult either-or choices upon you. If it comes down to choosing between contributing to a retirement account and paying for groceries, cover your more pressing near-term needs first.
7. Lean on your community. We are all in this together. With a crisis like this comes the opportunity to accept the kindness and generosity of others, and to be generous and kind with others in return.
8. Consider other liquidity options. If you own a home, a home equity line of credit can be a viable source of cash to cover expenses. Essentially, a HELOC is a line of credit available through banks and other lenders that enables you to tap the value of your home.
9. Be aware of your last-resort liquidity options, and treat them as such. The CARES (Coronavirus Aid, Relief, and Economic Security) Act allows people to access funds in their workplace retirement accounts [such as a 401(k)) and/or IRA] via loans or withdrawals. If you, your spouse, or a dependent is diagnosed with Covid-19, or if you have incurred negative financial consequences as a result of the pandemic, you may be eligible to take a retirement account distribution of up to $100,000 without an early withdrawal penalty. Income taxes still will apply to withdrawals from tax-deferred accounts like traditional IRAs, but people can opt to spread those taxes over three tax years. They also can treat the withdrawal as a loan (if the retirement plan in which they are enrolled permits loans); if they repay the loan within three years, they may be eligible for a rebate of any taxes they paid on the withdrawal. This loosening of retirement account rules lasts until September 23, 2020. Soelter suggests people use this option only as a last resort, to cover necessary expenses when there are no other viable alternatives. The same goes for credit cards. If your liquidity is such that you have no other choice to cover necessary expenses, a credit card can serve as a short-term stopgap. If you find yourself in such a predicament, look for a credit card with a low-interest offer, like zero-percent interest for 15 months, for example.
10. Get creative. If you’re out of work and have in-demand skills or talents, now’s a good time to try to monetize those to generate income. If you’re a master baker, start selling baked goods locally. Got a green thumb? Market your gardening skills. Have items you don’t necessarily need or want that you think would have value in a secondhand marketplace — an unused bicycle, electronics, furniture, etc.? Try selling them on eBay, Craig’s List and similar sites.