Reviewing household budget in lockdown state

The service industry household budget, such as restaurants, travel, and retail, was hit hardest by the coronavirus, with jobs requiring front-line customer interaction disappearing first. According to Mckinsey & Company, these industries make up 42% of the “affected / potential occupations”. For those involved in the hit industry, I think it’s a really tough time now, but please, during this difficult time, the bulbs endure the cold so that they can quietly store nutrients during the winter and bloom vigorously in the spring. I pray that you can do it.

On the other hand, the impact on other industries is not so great. According to the Mckinsey & Company research mentioned above, the impact on utilities, agriculture, and mining is small, and the impact on professional, financial, insurance, information, and management occupations is minimal. We see the news about the growing Unemployment situation every day, but on the other hand, many people working in unaffected industries are likely to be able to do it remotely, which is inconvenient to leave home. However, it seems that there are many people who have almost no financial impact.

Eighty-six percent of the affected occupations are jobs with an annual income of $ 40,000 or less, and the majority of those affected are low-income, low-educated people who live on paycheck-to-paycheck with little savings. that’s right. Apart from the financial blows such as unemployment and suspension of income, there is also a considerable bias in those who are infected with corona and die, or who are severely ill and have large medical expenses, and are low-income earners and certain races. It is also a problem that you can see the concentration on. I think it reveals the distortion of the American system that some people are vulnerable to both financial and healthcare, while others are unaffected by either.

Looking at the words under Franklin Roosevelt, I can’t help but wonder if American society has really “developed”. It is a day that makes me think about various things.

 “The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.”

  — Franklin D. Roosevelt, 32nd President of the United States

This blog is a financial planning blog, so let’s just refocus and think about what we should do now. ,

Don’t think about long-term financial plans right now

I think it’s best not to think about what you’ve done for your goals more than 10 years from now, but to keep doing it. Keep the 401 (k), IRA savings, college fund savings, etc. as they are. Of course, we will not change what we have invested in … This is the ironclad rule.

If you are investing in index funds or other highly risk-diversified mutual funds, a market collapse like this one is “expected” for long-term investments. You don’t have to change anything because the market has collapsed.

Review and examine medium- and short-term goals

On the other hand, if you are about to retire next year, or have a medium- to short-term goal such as your child entering college this year, you need to review and scrutinize.

It’s normal to be worried if the market crashes ahead of next year’s retirement, but it usually takes 20 to 30 years from retirement to the end of its life. Long-term investment is sufficient to cover long-term future living expenses over 10 years. If you’ve made the right long-term investments with proper risk levels before the market crash, you probably don’t need to change now, and Stay invested is the best you’ve ever invested in.

However, it is necessary to consider how to pay for the living expenses of next year and the next year, which is the “time when the market does not fully recover (potentially)”. If you have enough other savings in cash so you can spend it, or live as much as you can with your pension, and you don’t have to deal with your investment funds at a lower price, you can retire as planned. It’s possible, but if it’s not, you’ll have to think about other options. It may be necessary to adjust the living expenses themselves to live a low-cost life until the market recovers, or to postpone retirement a little if that is not possible.

Similar considerations are needed if you have a child who is imminently enrolled. For 529 college funds, Smart & Responsible recommends low-cost Age-based investments, and if you choose that route, the negative impact is limited, even if the market crashes. I think it is.

In the case of Age-based, the stock investment ratio will be automatically reduced as the year of enrollment approaches, so in most cases of enrollment this year or next year, the stock investment ratio will be 20% or less. Even so, I want to avoid cashing when the price drops as much as possible, so I will make up for the college cost this year and next year by drawing out from other savings or monthly salary as much as possible and withdrawing from 529 as the market recovers. I think you will need planning.

Monthly budget review

It may also be necessary to review the budget for a limited time in connection with the above cases or in connection with a temporary decrease in income. In a lockdown life like this one, what is important to me, which costs are indispensable for life support, which costs are not essential, but which will enrich my life, I have no cost yet. I think I was given a good opportunity to think about what could be done.

This crisis is also a great opportunity to talk about finance at home. Talking about money, which I usually avoided, may be easy or even if I don’t want to take this opportunity. Please talk about your household budget at the lockdown dinner table.

Even after surviving this corona shock, this may happen again. This is a good opportunity to organize. A good household is a required fixed cost (Need), a cost that is not essential but you want to spend because it enriches your life (Want), and a cost that is not absolutely necessary but you can afford it, considering other trade-offs (Want) Wish) is a well-organized household budget. A household that can take the plunge even with a small amount of wasted money, but a household that can cut waste immediately if necessary and cut spending, is a household that can deal with money and health. The secret to keeping your monthly budget large, small and flexible is this categorization.

Stop payment for a period of time if necessary

Loans from the federal government are now offered suspension of payments for a period of time, but loans from other companies also receive a variety of help during this corona period. Many cannot wait and receive it, and must request it themselves.

credit card 

Most of the time, when you contact your credit card company, you can get a temporary exemption from payment obligations and a temporary reduction in interest rates. It may be best to call and talk to Rep directly, but I think everywhere on the phone is very crowded. Some companies can also initiate requests on the web. It’s never widely advertised, so you’ll need to take a closer look at your homepage.

Student loan

Federal loans automatically go to zero interest for 60 days (and then reconsidered). You also have the right to be exempt from the repayment obligation for two months (and then reconsidered). This exemption must be requested. Call 1-800-4-FED-AID or check the website of each loan service company. Loans from other companies are also likely to provide some help, so check the homepage or call if necessary.

When you need cash

In this situation, the most reliable line is cash, which is maintained as an emergency fund. It makes a lot of sense to have cash that you can rely on right away, without having to sell when your investment drops or destroy your retirement funds.

If that cash isn’t enough, how to make it is different for each household. There are the following options, and the most suitable one is selected according to each condition and household condition.

  • If you have mutual funds in your taxable account, you will get a short-term loan with those funds as collateral.
  • If your 401 (k) offers a loan, get a loan. Not available in all 401 (k). Consider interest rates and repayment conditions.
  • Pull out from a 401 (K). No early withdrawal penalty due to CARES ACT. No income tax if you deposit back within 3 years. However, it is necessary to consider selling the fund in a state where the price has dropped.
  • If you have enough equity in your home, open an equity loan (HELOC). The Line of Credit has the advantage that once it is opened, it can be withdrawn as needed. Please confirm the repayment conditions.
  • If you have enough equity in your home, cash out refinancing (refinancing and borrowing more than your current loan balance to receive cash). Interest rates are currently falling, so in some cases it may be a good choice. It will be done in consideration of future repayment design.
  • If you have home equity and are 62 or older (both married and married), open a Line of Credit with a reverse mortgage. Make a decision by carefully considering fees, costs, risks, etc.

Which one is better depends on each family, so it is necessary to examine it according to the situation.

 

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