Managing Your Finances Amid A Pandemic
Speaker 1: 00:00 Life has definitely changed due to the coronavirus. And that includes the money we have going in and out of our bank accounts. San Diego counties, unemployment rate is estimated to be 16% compared to just over 3% before the pandemic. If you are one of the 250,000 people in the County, you've lost your job. You're sure to have thought about how you'll manage, but maybe haven't thought about how a budget could help. Even if you are still employed. There are good reasons to reassess how we manage our money to avoid financial problems down the line. Joining me to discuss budgeting during a pandemic as Paul Lynn, who was a financial advisor with a wealth consulting group and an advisor to the San Diego financial literacy center, a nonprofit that provides free financial services to the community. Paul, thanks for being with us. Thank you for having me. So now, if you're one of those, who've lost a job as a result of the pandemic. What can you do to take stock of your financial situation? It's very easy to feel completely overwhelmed. Isn't it? Speaker 2: 00:57 It absolutely is. And one of the things I encourage people to do first off is measure what matters. And this is something that's always applied in the past. It's going to continue to do so moving forward. But I think the things that we're going to be evaluating these days are just different than what was important before. First off, if you've lost an income or even two household incomes, I would make a point to really figure out which government programs you're eligible for, namely unemployment and Sharon's and things of that nature. You have to have some semblance of cash flow coming in. Once you're able to determine what you can do as far as earning that additional cash coming in. Now, you really have to be great about putting that budget in place. And I know that people cringe when they hear the B word, but I think if you reframe it in your mind as having a money plan, that you're more likely to take some action and feel better about it, as opposed to see you feeling like you're punishing yourself with scarcity. Speaker 1: 01:57 It feels really scary not being able to pay bills, you know, like, like rant or electricity or water. I mean, is there any point in calling the people that you cannot pay? Speaker 2: 02:06 Absolutely. You know, one of the first things we'll do with a budget as we divide the categories of your spending into needs and wants. And I think it's easy for most people to understand about the wants and how to cut some of those subscriptions and memberships come to mind as things that you can forego during this time. But as far as the needs go, this time presents an opportunity for you to work with a lot of your creditors, landlords companies that you owe some money to, and really negotiate some terms with them and just make and demonstrate a good faith effort that you're willing to pay them when you can. And these days people are surprisingly accommodating when it comes to things. And all you have to do is make a phone call. The worst thing they can do is say no. Speaker 1: 02:50 So it's worth a try, huh? I'm supposing that you can't afford your expenses, particularly since the additional $600 in federal benefits has expired, or perhaps you're waiting for your unemployment to come through. What, what are your thoughts on putting expenses on credit cards? Speaker 2: 03:05 If you're lucky enough to be able to get a credit card with 0% APR or something of that nature, that can be a reasonable way for you to still be able to meet those expenses, using a little bit of borrowed money. You just don't want to get into a habit of accruing large amounts of double digit APR sorts of debt. It's like the opposite of an investment. It grows in the opposite direction. So as long as you know that this is a temporary move that you need to make, and that you can motivate yourself to pay that off as soon as you're able to do so, it can be a stop gap measure for you to utilize. Even if you have to use the credit card, a couple of times Speaker 1: 03:47 Borrowing from retirement accounts, Speaker 2: 03:50 The things that the cares act allows people to do is to take a Corona virus related distribution. And the definition of that is pretty broad. But in essence, you can take up to a hundred thousand dollars as a withdrawal from a 401k or an IRA or other similar retirement plan. And you don't have to pay a penalty for being younger than 59 and a half ordinarily. If you are younger than that age, you would pay 10% on top of income taxes to which you were already subject. They've waived that as a result of the issues that are related to having to access retirement funds. The other nice part about it is you can actually spread the taxes out over the course of three years. Now, a lot of people might not be that concerned about taxes in 2020, but it would be really nice to have the ability to take a large amount of money from a retirement plan, which was really supposed to be future money and use it for a short term need while also spreading out the taxes over a few years, to give yourself a break. Speaker 1: 04:53 Now, what are you telling your clients who are currently employed still? How might expenses have changed in ways that that subtly add up over time? Speaker 2: 05:00 You know, I think that a lot of people who still have their incomes will find themselves spending a lot less on leisure expenses, vacations, and things of that nature. Maybe it would make sense to use this unique opportunity to redeploy those funds towards more productive purposes. If you're not in a position of scarcity and you're able to do a little bit of planning and foresight, maybe this is the year to do Roth conversions or to look at more advanced financial planning strategies with all this money that used to be allocated towards lifestyle expenses that really no longer present themselves these days Speaker 1: 05:39 Bills might go up though, because you're at home a lot, for example, electric bills, there might be other things that, that catch you on unexpectedly Speaker 2: 05:47 Nelson. That's totally true. And I think it goes really back to measuring what matters. You know, people say that what gets measured gets improved. So you should really figure out or not your home lifestyle is going to be something that is higher these days than what you were used to, and then make cuts in other areas as appropriate. It's really all about putting forth an effort. The whole concept itself is very basic and it's something that most people know inherently, but it's prioritizing doing the exercise and taking the time to actually do it. Speaker 1: 06:21 No, the world bank says this is going to be the worst recession since world war two. So should people be saving more if they can, Speaker 2: 06:28 If you're in a position to save, this would absolutely be a great time to prepare for future opportunities. People have said many things about many markets and, uh, predictions that have, have, have come in many different ways. There have been lots of surprises this year. It always makes sense for you to have cash for buying opportunities or to hold out during the hard times. And I think that it's correct to always be in that mindset anyway, no matter what situation you're presently in, you're always going to have a future. So needing to put some money away for your future is a certainty. It's a necessary step that we all should take. So if you're in a position where you've been largely unaffected, as far as your income goes with respect to the pandemic, then I think it makes a lot of sense for you to still continue saving towards your longterm goal. Speaker 1: 07:20 So Paul bottom line, what's the best thing that we can do to protect our financial situation at this time. Speaker 2: 07:27 I think the best thing that most people can do right now is to prepare themselves mentally and in a healthy way, not to view this as a crisis, but more like an opportunity where we'll still take the time to make a plan and take deliberate action steps. The world is different now, but a lot of the principles remain the same. What you tell yourself in your mind usually becomes true. In reality, if you tell yourself that you have a little bit of abundance and that you've got the ability to still make ends meet well, having a reasonably enjoyable lifestyle, those things will happen. If you tell yourself it's the end of the world and that you're not going to have enough money to do all the things you want to do, and that you'll be very unhappy, that's going to happen as well too. So I think it's more of a mental game than it is an academic exercise, right? Speaker 1: 08:15 We've been speaking with Paul Lim who is a financial planner and an advisor to the San Diego financial literacy center. Paul, thanks so much. Speaker 2: 08:22 Thank you.
