Our Experts Answer Questions About Your Money & COVID-19
The COVID-19 pandemic rapidly transformed our economy and daily lives, and amid this new reality comes uncertainty. As things continue to change, we’re focused on what we do best: answering questions.
To help answer some of the most common questions we’re getting right now, we turned to two of our industry-leading experts for their perspectives on what’s going on.
Justin Pritchard is an author and Certified Financial Planner (CFP) who has been writing for us since 2003. Pritchard has written hundreds of articles on The Balance about banking, loans, investing, and more, and he also runs a financial planning firm in Colorado.
Marguerita Cheng is a CFP and a member of our financial review board—a group of financial professionals that conducts one of the many quality checks our articles go through every day. In addition to being a CFP, Cheng is also a Chartered Retirement Planning Counselor, a Retirement Income Certified Professional, and a Certified Divorce Financial Analyst.
What is the best way to use my stimulus check?
Marguerita Cheng, CFP: I'd focus on a tiered approach based on each person’s situation and circumstances:
- First focus on essentials. If you have experienced reduction in income or loss of income, use it to catch up on expenses. I understand that this is a stressful time—you don’t need to use this money to pay down debt if you are worried about how you will meet your expenses. I am not suggesting that you ignore your debt, just focus on essential/core expenses.
- If you haven’t experienced a reduction in income or loss of income, most definitely use this to build up your cash reserves.
- If you are in a position where you can help, consider making donations to a community-based organization. Even before the official shutdown, I know that our family did support the Diaper Bank. You can also give gift cards for first responders or donate to the food bank.
I do my part to support local business. We do prepare healthy meals at home, but I also order carry out from several local Asian businesses. One of the owners wanted to hug to thank me for continuing to support her business. I do know that supporting these local businesses is making a difference in my community.
My stimulus check isn’t enough for all my bills. Which should I focus on paying?
Justin Pritchard, CFP: Prioritize your most important bills.
Staying in your home, getting medical care, and eating healthy might be the most critical things right now. Lenders, landlords, and other service providers might allow you to skip payments temporarily, so take them up on that offer, if needed.
Missing a credit card payment isn’t ideal, but it’s better than skipping rent: Getting evicted would cause a major disruption. Keeping your mobile phone service could also be crucial, as it allows you to communicate, coordinate work and childcare, and more.
Will I have to pay taxes on stimulus money?
JP: Initial guidance from lawmakers is that your relief check will not be considered taxable income. As a result, you would not owe taxes on the amount you receive.
Will I have to pay it back?
JP: No, you should not have to repay that money. An exception might be if you receive funds as a result of fraud.
I haven’t received my stimulus check. Is there anything I can do?
MC: I am actually helping my daughter with this very issue. Sarina graduated in 2018. In 2019, she did work full time, but has not completed her 2019 tax return. This tool is helpful, but it her case, we did receive the following message:
"According to information that we have on file, we cannot determine your eligibility for a payment at this time. For more information on the eligibility rules, see our Frequently Asked Questions page."
Please don’t be discouraged if you receive a message like this from the IRS. I told my daughter that since she has not completed the 2019 tax return, the IRS cannot determine her eligibility.
How can I get mortgage relief?
JP: Under the CARES Act, you may be eligible for relief if you’re experiencing financial hardship as a result of COVID-19.
If you have a federally backed mortgage, you may qualify for forbearance, allowing you to temporarily pause or reduce your payments. There may be assistance for other types of loans available through your state or your lender. Contact your loan servicer immediately if you’re having trouble paying your bills.
Is this a good time to refinance my home?
JP: If you have an opportunity to score a lower rate, refinancing might make sense. But even if you get a lower monthly payment, you might end up spending more money over the life of your loan. That happens if you extend the loan repayment term and pay interest for more years, and with fixed-rate loans, you pay most of your interest in the early years. Plus, you need to account for closing costs.
Is this a good time to buy a house?
JP: On the one hand, there probably aren’t many buyers competing for inventory right now. Plus, rates are low, which helps you keep interest costs and your monthly payment low.
However, sellers may be waiting to list properties, and safety practices like social distancing make it hard to buy. The future is also uncertain right now, and taking on a substantial monthly payment in this environment could be risky. If you’re certain that you can keep your income and stay in the area you’re buying in, it could make sense to buy—if you can make it happen safely.
My landlord is still expecting rent. Do I have any options?
MC: Communication is key here.
Some landlords are more proactive with communication than others. In my coworking site, the property management company automatically gave all members a 50% discount on our rent. We didn’t even need to ask. I also checked business interruption insurance. Unfortunately, pandemics may not be covered.
As far as residential issues, every state may have different rules. I think it is certainly important to communicate your situation with your landlord. Some landlords can be more understanding & flexible than others.
My apartment amenities have been closed. Can I ask for rent concessions?
MC: I think it is certainly worth asking the property management company.
Should I be investing in individual stocks? If so, which ones?
JP: Individual stocks are risky: You could win big, you might lose all your money, or your results may fall anywhere between those two extremes.
If you’re investing for long-term goals, it might be more prudent to use low-cost mutual funds and ETFs, instead. Those vehicles make it easy to spread your dollars out among numerous investments, and you can choose a level of risk that’s tailored to your needs. Plus, funds don’t require as much upfront research or ongoing monitoring.
It is never a good idea to buy an investment if you don’t understand the risks. If you have any serious concerns, consult with a financial adviser.
Should I still be investing in my 401(k) given stock market volatility?
JP: Assuming you’re a long-term investor and you chose an investment mix that’s appropriate for your situation, it might be wise to continue investing. Buying at today’s lower prices could potentially help you reach your goals.
But you need to recognize that markets could continue to fall from here, and it might take years for markets to recover. That said, if you need to beef up your rainy day fund, it could make sense to pause contributions until you have plenty of emergency savings.
Should I take money out of my 401(k) to help with bills?
JP: Your 401(k) has potential tax benefits and creditor protection, so it’s best to tap those funds only as a last resort. Plus, you may lock in losses by cashing out now, so explore other options first.
For example, you might be able to temporarily stop paying on student loans and mortgages, which could reduce your need for cash. Contact credit card issuers, utility providers, landlords, and others to find out what options are available. If you absolutely need to withdraw funds from your 401(k), consider using a 401(k) loan. When you repay that loan, you eventually replenish your retirement savings (more or less), and you can avoid tax consequences.
My Roth IRA is tanking. What should I do?
JP: It’s frustrating and scary to lose money. Revisit your long-term goals, and focus on if and when you need to use your money. Losses are normal, but markets have tended to recover—even though it might take longer than you’d like.
Unfortunately, selling in the midst of a crisis can backfire, especially if markets are poised to turn around or stabilize. Assuming you have a diversified portfolio designed with your long-term goals in mind, it may be best to ride this out.
What are some ways I can increase my financial literacy?
MC: You can definitely use this time to learn a new skill, such as improving your financial literacy or becoming more financially resilient and confident.
April is financial literacy month. For parents, I understand that it can be stressful and overwhelming, but consider using this time to discuss financial literacy with your family. I am practicing social distancing, but I taught my Mom how to deposit checks right from her smartphone.
Have more questions?
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