Millions of people across the country are struggling to make ends meet, and that struggle will go on foreseeable future. They have lost their jobs or been furloughed. Many are depending on unemployment and stimulus checks to feed themselves and their families. They can’t afford both food and rent and need to make very difficult decisions. It is an awful position to be in, and hopefully those who are in better financial shape are helping out.
How do people handle their financial obligations when they are living on a financial roller coaster full of unknowns? And are there any upsides to what we’re going through?
As painful as living through the pandemic is – both mentally, physically and financially – it may turn out to be a great learning experience and eye opener. People may find they are just as happy not having the extra article of clothing or the expensive bottle of wine. Pandemics are a humbling experience, because your expensive coat will not protect you from the virus.
A big concern
Obviously, not losing your home by foreclosure or eviction is on the top of the worry list. The CARES Act allows you forbearance, which is suspension of payment, providing your mortgage is either federally backed or sponsored by the federal government. The program was set to expire in late July, but it was recently extended until the end of the year.
The mortgage is not forgiven, but payments are postponed. The forbearance period lasts for 180 days and may be extended another 180 days, provided you contact your lender prior to the expiration date of the first forbearance period. Rules may vary by state, so be sure to speak to your lender and clearly understand your options prior to making a decision.
Renters may also receive the ability to postpone rent if they live in subsidized housing, are subsidized by the federal government or the landlord has a federally backed mortgage. Again, you are ultimately responsible for the rent payment.
In addition, the CDC (Centers for Disease Control and Prevention) issued a four-month eviction moratorium on Sept. 1, 2020. The moratorium applies to individuals who earn less than $99,000 or couples who earn less than $198,000 in 2020. A landlord has the option to challenge the tenant and ultimately take them to court. Again, you are ultimately responsible for the rent payment.
Other loans and debts
Student debt that is backed by the federal government also received an extension on payments through Dec. 31. These loans are deferred not forgiven. The suspension of student loans was set to end on Sept. 30, but it was extended through the end of the year. If a student is the position to continue paying their loan, then I would recommend they do so.
Since credit cards and car loans are not covered by the federal government, one must contact the individual companies and work something out. It is a mistake to stuff a bill in a draw and forget about it. Fees and a hit to your credit score will be incurred, which in the long run can be quite expensive and damaging.
The majority of companies are understanding and are willing to work with their customers, provided they are honest about their situation and are willing to work out a payment plan.
Good news for those who can pay their bills
In contrast to those who have little wealth, the majority of my clients are more fortunate because they are still working and have money coming in, even if they had to take a pay cut. They can still afford food and shelter, but are not spending as much money as they had prior to the coronavirus. They are re-evaluating their financial situations because, until quite recently, they were in lockdown had nowhere to go. This led to a positive result: They spent less money. They are eating at home instead of at restaurants, forgoing haircuts and hair coloring, and avoiding mall shopping.
In talking with these clients, they are shocked at how expensive their previous lifestyles were. What are they doing different than before? As a family, they are playing board games, taking long walks, and trying out new recipes with whatever ingredients they have in their cupboards. In talking with them, I have realized they are “enjoying their new normal” because it is new and hopefully temporary. Looking ahead, they are more conscious about their prior spending habits and are asking for help in re-evaluating them.
An important financial tool
My feeling is everyone should have a budget. It is irresponsible not knowing where your money is going. I encourage every client to know what is coming in and what is going out, regardless of the amount. Many of them have decided they enjoy seeing their saving accounts increase and want to continue to cut back on eating at upscale restaurants and buying extra-expensive outfits.
I am working with them to do the analysis and set up a working budget with clear categories. We are adding categories for fine dining, clothes, theater, etc., along with the practical categories for things we all need to pay for. They like the idea of taking every paycheck and paying forward for items. For example, if they are in their favorite store and, instead of impulse buying, they stop and think, “How much do I have in my clothing budget category? Do I really need it? I’d rather have a new jacket, etc.” Regardless of how much money they may or may not have, thinking about and balancing cash flow is important.
My heart goes out to those impacted by COVID-19. Hopefully some good comes out of this pandemic. Maybe part of our new normal will include responsible spending and saving.
Securities and Advisory Services offered through Cadaret, Grant & Co., Inc., a Registered Investment Adviser and Member FINRA/SIPC. HMS Financial Group and Cadaret, Grant & Co., Inc. are separate entities.
Barbara Shapiro is the President of HMS Financial Group located in Dedham, Mass. She is a CFP®, Certified Divorce Financial Analyst and a Financial Transitionist®. She is also co-author of "He Said: She Said: A Practical Guide to Finance and Money During Divorce." Her firm specializes in comprehensive financial planning with a subspecialty in divorce that assists clients' transition from marriage to independence with peace of mind and confidence. Learn more at HMS-Financial.com.
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