In the past several weeks, the number of cases of COVID-19 in the United States has risen dramatically. As a result, local, state, and federal officials are frequently updating guidelines as they determine what has to happen to help keep Americans safe.
Good hygiene, such as frequent handwashing, is necessary to help protect against the virus. This is good advice, but another critical step to limit the virus’s spread is social distancing. This means staying away from other people. That could have devastating results when it comes to finances.
Coronavirus’s Financial Impacts
The stock market is now fluctuating more than ever because of fears about COVID-19. In fact, earlier in March, the stock market had a brutal opening. It was so bad that trading stopped for some time. However, investors who are leaving their portfolios untouched are likely to be unharmed by the coronavirus scare. The money is only lost in the stock market when the investments are sold. That means that people who do not touch their investments will be likely to avoid being hit as hard as other people since their investments will eventually regain their lost value.
Even though you might not need to be worried about your stock portfolio because of COVID-19, your finances might be different in the near future. There are many forms of social distancing, some of which can have more devastating results.
In some cases, social distancing might involve closing schools for the rest of the school year and going to online instruction. In other cases, it has involved closing down businesses and even offices if working from home isn’t an option. For many workers, this is not a good scenario.
For example, consider someone with young children who can’t go to school for many weeks. Daycare centers are also closing because of the virus. Or consider someone whose company has every nonessential employee take off several weeks — without pay. The employee then has to worry about paying their bills for the next several weeks.
This can be a scary situation for everyone involved. However, if you have an emergency savings fund, then you might not have quite as much to worry about.
Why You Should Consider Having an Emergency Fund
There is a reason that you may have heard the advice to save at least three to six months of living costs, if not more. You never know when you may experience a financial emergency. Without having any savings, you are likely to fall behind on paying off your bills. You might go into debt just to meet the everyday costs of living, and then, you will have to spend years paying it off.
When you think of emergency situations, you might think of unemployment or car or home repairs. However, you usually do not think of a worldwide health crisis that shuts down entire cities. This situation shows that there are many types of financial emergencies that you might not even have thought of before.
If you do not have an emergency fund, you may still have time to develop one if you are still receiving a paycheck. Save as much of your pay as you can, even if it means cutting back on other things. For example, consider temporarily canceling any music or TV show subscriptions. Even if you can only save a few hundred dollars, it is better than nothing.
Financial Planning Scenarios
Nobody saw this virus pandemic coming. The hit to millions of retirement portfolios has ranged from modest to severe. But one can prepare for severe market downturns by running what-if scenarios on their retirement plan. It is important to know how your retirement plan might hold up if the market goes down by 25% all the way to more than 50% in a market downturn.
There are a couple of really good retirement planning applications that allow you to run some of these scenarios. Personal Capital is a popular one because it is very easy to use and is free. But their retirement planning section is limited and cannot be used to model a severe market downturn. One really good application to run these types of scenarios is WealthTrace. It allows you to run “bear markets” and see how your portfolio and plan will hold up if we have varying levels of recessions and severe stock market downturns like we are seeing now.
It is still unknown what the next several weeks will have in store. There may be more volatility of the market and even more businesses completely closing down. Small businesses may take a financial hit and have trouble recovering.
You should keep adding to your savings account as much as possible. Try your best to not touch your retirement savings account or your stock portfolio during this period. In the best-case scenario, health officials will soon get a better understanding of the COVID-19 virus, such as how to treat it and keep it contained, and things will start to get better. But it is always better for you to be prepared just in case.