What should you do financially to get through the coronavirus COVID-19 pandemic?

Regardless of the current or coming health effects of COVID-19 on you or your family, the pandemic has affected and will likely continue to affect household finances for years to come. Having a plan, prioritizing spending, and using resources efficiently will be key to your financial stability.

Economic Impact of COVID-19

As of the publication of this post, COVID-19 is having a massive effect on the US Economy, even if it is not felt yet on everyone’s household budgets. From the cancellation of sporting events and religious gatherings to the closing of travel between the US and other countries, international trade is being severely disrupted.

While we pride ourselves in America for our rugged independent natures, sometimes even to excessive isolationism, we are going to see over the next few months and years how interconnected we are economically to countries around the world. As the importation of goods from Europe comes to a practical standstill and products made in Asia diminish from retail shelves every day, Americans will have fewer choices for purchasing their consumer goods.

While this seems like a boon to American Made brands, fewer consumer goods being sold means fewer purchases, which means lower business profits, which in turn means less income to hire and pay employees. With this basic understanding of the chain reaction that leads from lower trade to smaller or fewer paychecks, you can generally expect a slowdown in the US economy to last more than a month or two. Many economists expect the financial effects of the COVID-19 pandemic to cause greater economic stress in the US than even the housing crisis and the Great Recession of the late 2000s.

Because the US and the world’s general economic situation was overall quite healthy before the novel coronavirus outbreak in the fall of 2019, recovery should eventually be less painful than it otherwise could have been. However, you should also expect the fallout from the pandemic to affect you directly and personally in your wallet.

Household Impact of COVID-19

Individuals who work for businesses heavily involved in international trade have felt the impact most directly, with loss of bonus and other incentive pay often followed by furloughs and possibly even temporary or permanent job loss. This is a worst-case scenario, of course, but it is not uncommon, even in the current state of diminishing panic coming from the government, business, and other societal sources.

As the economic contraction turns into a longer-term economic recession, you can expect high unemployment figures to continue, along with lower wages as more job seekers compete for fewer available jobs. However, given the broader stability in the economy prior to the pandemic, long-term recovery seems certain, although what it will look like is still up for debate.

Event Cancellations and COVID-19

With all major sporting events and seasons canceled (Olympics, NCAA tournament, the NBA, the NHL, and MLB), fans of the games are not surprisingly disappointed. However, such drastic measures will have a direct negative effect on many more people than just the employees at the venues or of the teams. Employees of the companies that depend upon these events will feel their own economic contraction. From vendors and retail shops nearby to hotel and airline companies to many in the gig economy such as Uber and Lyft drivers, canceled events will mean no side income or no income at all.

School Closures and COVID-19

As school district boards and principles decided to close their doors and hold many classes virtually where possible (whether for credit or not), many households have experienced financial upheaval due to having school-aged children at home full-time. The vast majority of American households either depend upon two incomes or are run by single parents with one income source. If children are no longer sent off to school while Moms and Dads head to work (even virtually), many parents are still left to either pay for more daycare (if they dare) or take personal time off to deal with children stuck at home.

Not only does this mean parents are using some or even all (and then some) of their paid time off, but down the road, this will mean those same parents will have less paid time off work to travel and spend money fueling the tourist-driven sections of our economy. The silver lining? Besides the crazy-cheap flights and hotel rooms during the lockdown, watch later this summer and fall for great deals on theme park tickets, resorts, and travel agencies as they try to lure as many potential vacationers as possible who might still have time off available.

Travel Bans and COVID-19

A temporary travel ban announced March 11th by the president may seem to many a mere inconvenience to their family vacations. Unfortunately, it will also hamper the work of many businesses that rely on the exchange of knowledge and information through in-person business trips. Additionally, many association conferences and college research trips have been canceled and are still being canceled through the end of 2020. While virtual meetings are growing, the loss of personal income to those in the travel and convention industries will continue to suffer for months to come.

Quarantines and COVID-19

For those who become ill with COVID-19 and experience the difficulties of quarantine, loss of paid time off is just one concern. For small business owners including those who earn no income unless they are working themselves (think many physicians, attorneys, dentists, accountants), not to mention anyone who depends upon multiple sides hustles to pay for rent and groceries, quarantine has been a financial nightmare. Of note, Uber announced that it would actually compensate its drivers who were placed under COVID-19 quarantine. Other delivery companies appeared to be following suit.

COVID-19 and Scams

Inevitably, natural disasters and national crises spawn waves of scams and fraudulent services. It does not take much imagination to see such activities surfacing such as the following:

Beware of snake oil salesmen peddling “secret” cures and vaccinations to anyone desperate enough to pay for them. Such remedies may come in the form of pills, herbal formulae, and non-traditional “natural” treatments. Although you might want to justify spending money on outlandish claims in the “hopes” of it helping, remember that hope and fear are actually polar opposites. Hope leads to positive actions and positive changes while fear leads to negative choices and damaging consequences. Pay attention to the irrational claims you hear or read as well as to your gut instincts.
Avoid becoming the victim of unethical activities that pray on your fears and the collective panic. You have seen this in play in the rush to clear shelves of toilet paper, but if you find an “opportunity” to buy such supplies online at exorbitant prices, do yourself and your bank account a favor and steel yourself against overreacting.
Worse yet are the outright fraudsters who will offer to sell “emergency equipment” and supplies for some supposed doomsday scenario, peddling generators, hazardous materials suits, filtered facemasks, goggles, and surgical gloves, and coronavirus first aid kits. Many of these items will never be required or used. As for goggles, gloves, and first aid kits, they will likely not differ in a “Coronavirus Kit” from what you would find in the first aid kit you may already have in your bathroom, with the exception of the ridiculous price. Such excessive pricing can be termed racketeering, and you do not want to fall victim to it just because of fear and panic.

Budgeting for COVID-19 Direct Impacts

Although unemployment has skyrocketed, it is still of note that the direct impact on most American households may be relatively limited and somewhat temporary in-scope. Most workers have retained and will retain their income and current salaries, although there will be a strain placed on government agencies and nonprofit charities by the large ranks of the unemployed.

As seen very clearly on the news and social media, crazed runs on everything from hand sanitizer to even toilet paper may have seemed like a good idea for many households at the time, but for those who were not in the financial position to buy in bulk, this left them with few good options. After all, how comfortable are most neighbors knocking at the door and asking for a roll of toilet paper?

While many may think that using emergency savings funds is perfect for purchasing supplies in this sort of situation, you would do well to remember that emergency funds are for times of no income. Periods of no income include unemployment and missing work due to emergency medical crises. Until either of those situations arise in your household, it will always be a good idea to sit tight and leave your emergency savings alone.

As for stocking up on needed supplies, the best time to do so occurs before the panic sets in. Once consumers begin purchasing irrationally, you may be faced with either empty shelves or exorbitant prices. Learn a lesson from this experience and buy an extra can or two of soup, an extra package of bottled water, or even an extra package of toilet paper when you do your normal shopping in the future to stock up slowly.

As the pandemic reaches into all 50 states, and into most major communities, having a plan for spending your resources wisely will benefit you today and into the future. If you do not have a spending plan (aka budget) for your household, now is certainly a better time than later to put one together.

A budget is simply a plan for where you would like your money to go. To prepare for potential health issues and medical expenses, you would do well to divert some discretionary spending from activities like dining out, going to the movies, vacations, and even subscription services, to an emergency savings fund for medical-related expenses.

Prioritizing Expenses

Prioritize where you would like your money to go. Typically, this includes housing and utilities, food, transportation, and communications, and some clothing. While I am not a proponent of reactionary finances, meaning that I do not believe households should go into financial lockdown because of this virus pandemic, households should always consider, and even reconsider, their priorities. In times of crisis, what is most important to us comes into clearer focus. Ask yourself if the money you spend currently goes to the most important priorities in your life.

COVID-19 and Debt

Do not discount the continued importance of paying down your debt balances consistently and paying them on time every month. COVID-19 will not end society as we know it (though it will change), but if you stop making payments to your creditors, you could put yourself into a financial hole that will take years or even decades to dig out of.

Household Savings and COVID-19

Throughout the course of this pandemic, most households should continue to contribute to their savings funds so long as they have a salary or wages coming in. Do not max out your income and credit cards because you are worried about another run on toilet paper. Do not go online to stock up on a one-year supply of hand sanitizer. Instead, follow the guidelines from the CDC while continuing to contribute regularly to your emergency savings fund. Additionally, you should look at funding accounts for your short-term goals.

In the end, while COVID-19 has already disrupted our entire society and even caused the unfortunate death of many of our co-citizens, it may still be quite likely in 20 years that we will look back on 2020 not as the year of COVID-19 but as the year of the Great Toilet Paper Panic.