Coronavirus is causing economic turmoil, with the pandemic leaving many Americans worried about their jobs and investment accounts. During these turbulent times, it's difficult to make rational choices about the best way to manage your money. But it's also important, as the decisions you make now could have a major effect on your financial future.
Some money moves could help improve your long-term situation, while others could mean the crisis has a negative effect that lasts long after the pandemic ends.
Three smart money moves to make during the coronavirus crisis
During this time of economic uncertainty, the best things to do with your money involve reducing your expenditures and increasing your liquid cash. In fact, three tasks that should be on the top of your to-do list include the following.
- Bulking up your emergency fund: Millions of Americans have been left without jobs due to the coronavirus crisis and many experts suggest the unprecedented economic shutdown necessary to slow the spread will leave millions more unemployed. If your income hasn't yet been affected, act as though it could be and start squirreling away cash in an accessible high-yield savings account so the money will be there when you need it.
- Cutting spending: Cutting your costs has a double benefit. It will free up more money to save in your emergency fund, and it will enable you to live on less if your income is reduced or you lose your job due to the economic fallout of COVID-19.
- Refinancing debt: The Federal Reserve has lowered interest rates to encourage lending. While it's not a perfect correlation, when the fed reduces the overnight rate, banks usually follow suit by reducing rates on consumer loans. If you can qualify for a low interest loan right now, it may be an ideal time to refinance your mortgage, private student loan debt, or credit card debt. Lowering your monthly payments by refinancing has the effect of reducing spending, which provides the twofold benefit described above.
2 things to avoid
While you want to free up cash and reduce monthly expenditures, there are also some things you should try to avoid. Here are two money moves you could come to regret.
- Raiding your retirement accounts to raise money to cover current expenses: The CARES Act, a massive federal stimulus bill aimed at lessening the economic effects of coronavirus, made it easier to both make penalty-free withdrawals from retirement accounts and to borrow from them. Unfortunately, doing either could reduce the money you have as a retiree. There could also be other consequences, including the possibility of facing a penalty if you take out a 401(k) loan it turns out you can't pay back.
- Panic selling investments: It can be really hard not to react to stock market volatility, even as history tells you that markets always recover from downturns when given time. If you sell when you've lost money, you lose the chance at participating in the recovery. As long as you're confident in your investment strategy and you own shares of high-quality companies likely to stand the test of time, there's no reason to panic sell.
Make the right money moves now
Managing money during an economic and public health crisis isn't something most people have experience with. But if you save up cash, reduce your spending, and stay the course when it comes to your investments, you should hopefully come through the coronavirus pandemic with no lasting damage to your financial situation.