Three Financial Mistakes to Avoid During the COVID-19 Pandemic
If you are concerned about money right now, you are not alone. As of April, unemployment numbers in America were flirting with those of the Great Depression. According to The Washington Post, more than twenty million people found themselves unemployed after COVID-19 ravaged the country. As more and more businesses closed or adjusted their business structure to limit the risk of exposure, more Americans fell into economic hardship along with plummeting gas prices, a spiraling stock market, and the rising cost of groceries and dwindling supplies of toilet paper and cleaning products.
But, there is hope. In an effort to keep Americans afloat, unemployment programs were expanded, student loan interest paused, stimulus checks disbursed, and creditors everywhere offering long-term loans with little to no interest. Regardless of the personal impact of COVID-19, everyone has been affected in some way. When it comes to finances, there are a lot of resources available to help – and a lot of attractive offers that could be the catalyst to put you under financial stress.
How do you navigate your finances amid a global pandemic? Here are three financial mistakes to avoid now, so that the financial impact of COVID-19 will not affect you later.
1. Selling stock while numbers are low
Even if you are not an active investor in the stock market, chances are you have seen your retirement accounts dwindling or heard rumblings about a stock market crash being on the horizon. While the stock market can be a scary place, especially when numbers are dropping in a global pandemic, avoid panicking and selling off stock while numbers are so low.
By nature, the stock market is a rollercoaster. Numbers will skyrocket just as suddenly as they can drop. There is no way of predicting exactly when the market will rebound, only the reassurance that eventually, it always does. So, rather than selling your stocks with a mindset of avoiding any more money loss, wait until the numbers rebound so that if you still want to sell, you will be selling for a profit.
In the meantime, if you need money now, consider taking a withdrawal from your emergency savings account or taking advantage of the favorable lending season with a zero-interest, short-term personal loan. With any luck, the stock market will rebound quickly, placing you in as good or better of a position than you were in before the COVID-19 pandemic took its toll. If you are nearing retirement and worried about diminishing funds, consult a financial advisor to evaluate the best plan of action to make sure that you are prepared for retirement regardless of the pandemic’s impact on the economy.
2. Making unnecessary purchases or avoiding financial obligations
Just because you can, does not mean you should. In light of the COVID-19 pandemic, there have been a lot of new financial policies implemented to help those impacted. For instance, the COVID-19 relief package allows you to remove up to $100,000 from your retirement account without penalty. While you may escape the typical penalty of an early withdrawal from your 401(k) or IRA, you are not doing yourself any long-term favors. Not only will you deprive yourself of those funds when you retire, but the principal amount will decrease reducing the amount of interest earned up to your retirement.
Think of credit as your lifeline. Now, especially, you should avoid using your credit card recreationally to purchase non-essentials. Maybe your credit card provider has offered to increase your credit limit, temporarily reduce your interest rates in light of the pandemic, or some other incentive to encouraging spending. Maybe you have received a solicitation from a local car dealership offering attractive prices and interest rates as part of their commitment to helping you during the financial crisis of COVID-19. Be cautious! It is important to only purchase the necessities so that you have some financial security in the event of an unexpected loss of income. Additionally, beware common forms of COVID-related fraud that exist to throw well-meaning citizens off course.
3. Assuming you are not at risk
In these uncertain times, avoid making assumptions. Even if you were one of the lucky ones who did not experience a change in income, the risk is not over – even essential workers have been furloughed. If you did experience a loss of income either because you were furloughed, work hours were reduced, or because you lost business and are self-employed, do not assume you cannot qualify for unemployment. Nationwide, unemployment numbers have skyrocketed because of COVID-19 related closures. With the increase in numbers, unemployment programs have been expanded to reach individuals whose circumstances would typically not qualify for unemployment.
If you are struggling to make ends meet, do not assume there are no options. Contact your service provider to let them know that your finances have been impacted by the pandemic. Whether you need to postpone a payment or two until your unemployment check comes through or if you need to work out a payment plan due to an unexpected change in income, reach out to your provider and share your circumstances. With the global impact of the pandemic, many credit providers are working with their clients to offer penalty-free payment plans, delayed payments, or even zero interest. Additionally, some of the best debt consolidation programs offer various options to help struggling consumers manage their debt loads.
Finally, do not assume that everything will return to normal by a specific time. Make smart financial decisions now to avoid further financial stress down the road. If you received a stimulus check, consider your financial needs. If you experienced an unexpected loss of income, your stimulus check may be the cushion you need to make ends meet now. However, if you have no urgent expenses you need to cover, consider depositing your stimulus check into your emergency savings account. This is a great way to earn some interest on the money now while keeping the funds available for future need.