Seeing your income dry up because of a job furlough, layoff, or loss can be a scary thing, especially during a global pandemic like the coronavirus. But it's not time to hit the panic button. Government assistance, including emergency unemployment benefits, stimulus payments, student loan forbearance, and mortgage forbearance, can help fill in the financial gaps if you're struggling during the COVID-19 crisis. If you're wondering how to make your money stretch even further when you don't have an emergency fund to fall back on, these tips can help.
The Biden administration has asked the Department of Housing and Urban Development and other federal agencies to extend the foreclosure and eviction moratoriums for federal loan programs. This includes USDA loans, VA loans, FHA loans, and loans guaranteed by the Office of Native American Programs. The extension is through June 30, 2021.
Expenses You Can Cut
The first step in making your money stretch when your regular paychecks disappear is deciding which expenses you need to pay and which you can do without.
For instance, basic living expenses typically center around three things: housing, utilities, and food. That means keeping up with rent or mortgage payments, paying electric, water, or gas bills, and buying basic groceries as part of your bare-bones budget. And keep in mind: During the coronavirus pandemic, you may have some built-in relief for these expenses.
For example, the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act allows eligible homeowners to pause mortgage payments for up to 15 to 18 months. Federal student loan borrowers can also pause payments (including interest) on loans through Sept. 30, 2021. This now includes Federal Family Education Loans (FFEL) owned by others. Taking advantage of these provisions could give you a short-term break from paying those bills.
CARES Act student loan forbearance doesn't extend to private student loans. If you have private student loans, contact your lender to see what type of relief you may be eligible for. The lone exception is FFEL loans, which will now get the same protection as federal loans. Any payments made or garnished wages will be returned to the borrower.
Anything beyond the basics of housing, utilities, and basic food may be fair game for reducing your monthly budget expenses, including:
- Streaming services
- Gym memberships
- Print or digital newspaper and magazine subscriptions
- Takeout meals
- Clothing, accessories, or toys
- Hobbies and recreation
Jeff Rose, a certified financial planner and founder of Good Financial Cents, told The Balance via email that it’s important to pay attention to the details.
For example, if food is a big part of your budget, meal planning and focusing on unit costs when shopping can help minimize spending, Rose said. You can also save on energy costs by running the dishwasher with full loads only and keeping your freezer stocked so it runs more efficiently.
Consider trimming overlooked expenses, such as bank fees, too. Switching from a traditional bank to an online bank, for example, could save you money if you're able to avoid monthly maintenance or minimum balance fees.
According to Rose, negotiating your bills is another idea for how to make your money stretch. Bundling car insurance with homeowner's insurance or increasing your deductibles, for example, could reduce your monthly or annual premiums. Reducing your cell phone or internet service plan can lower those expenses, too.
If you have credit card debt, you may be able to qualify for a credit card hardship program. These programs can reduce your annual percentage rate (APR), lower your monthly payment, or allow you to defer payments temporarily.
Before agreeing to a deferment or forbearance for debt payments, talk to your biller to understand how it may affect your credit score.
Ways to Get Cash Quickly
When you're short on cash, it pays to brainstorm ways to bring in extra income. Applying for unemployment benefits is one part of the puzzle, but it can take weeks for you to begin receiving payments.
In the meantime, consider other ways to boost your income and cash flow during the coronavirus pandemic. According to Rose, you might consider:
- Decluttering your home and selling things you don't need
- Joining the gig economy as a grocery store or restaurant delivery person
- Starting an online side hustle, such as freelancing or tutoring
- Using apps that pay you cash back when you shop
- Offering services locally, such as lawn care or running errands for people who can't or don't want to leave home
If you're considering doing something outside the home to make money, consider the cost to you. As a delivery worker, for example, you're responsible for paying for gas and car insurance, not to mention the wear and tear on your vehicle. Any costs you have to pay should be justified by what you could potentially earn.
Savings You May Not Have Thought Of
The COVID-19 crisis may have negative consequences on your finances, but there may be some silver linings.
Look at your budget to see how your spending habits have changed during the stay-at-home orders. You could be saving a significant amount of money if you're not:
- Eating out at restaurants
- Traveling for fun
- Socializing with friends
- Commuting to work daily
- Impulse buying at the grocery store
- Shopping for new clothes
For example, if you normally spend $200 a month on eating out and you've been cooking all your meals at home for the last six months, that's $1,200 in savings minus the cost of food.
Seeing your savings from this perspective can help you find the bright spots, especially during a financial crisis.
If you've run out of ideas for how to make your money stretch, there are a few more things to consider.
For example, you could open a new credit card account to help buy things you need. This isn't necessarily ideal, though.
"If your income has dropped, now is not the time to rack up credit card debt if you can avoid it," Rose said. "Use cash or debit cards if at all possible."
Tapping into your retirement savings account is another option. The CARES Act allows you to borrow up to $100,000 from a 401(k) with no payments due the first year. Or you can withdraw up to $100,000 from an IRA with no 10% early withdrawal penalty. The downside is that you'll be reducing your future nest egg by doing so.
Funds withdrawn from an IRA or 401(k) retirement account are taxable as income. You can replace those funds without impacting annual contribution limits, just like a retirement account rollover. You will have three years to complete any repayment—and any income tax you may have incurred on amounts you repay is refundable.
Finally, you may try talking to a credit counselor about your financial situation. A credit counselor can help you come up with a workable budget and discuss solutions for managing past due bills or debt payments to minimize negative impacts to your credit score.
Stick with a nonprofit credit counselor and be wary of any organization that asks for an upfront fee before offering credit and debt advice.
Just Make Sure You Take Action
The worst thing you can do when strapped for cash, especially in a situation like the COVID-19 pandemic, is nothing. Sticking your head in the sand and ignoring the bills will only make things worse. Instead, come up with a plan to tackle the bills and cut expenses as much as possible. This will make the financial storm easier to bear until it passes.