Since early spring, the coronavirus pandemic has shut down much of the US economy as we have traditionally known it. As a result, some individuals permanently or temporarily lost their jobs, some kept working as they had been before, after being deemed “essential workers”, and others shifted to a work-from-home model.
As segments of the economy and some schools start to re-open, employees and families may be asked to venture out into public spaces more than they have been for the last several months – maybe even heading back to the office. As a result, taking some time on financial planning makes sense, in the event of contracting coronavirus and/or any future economic step-backs or shut-downs.
The Wall Street Journal recently ran an article by Veronica Dagher entitled, “How to Get Your Finances in Order Before Returning to Work”, which included helpful tips and insights, some of which are included below.
Financial planning for a Rainy-Day Cash Reserve, aka Emergency Funds
To put it mildly, for many, the coronavirus pandemic has created a lot of unanticipated expenses.
According to the U.S. Federal Reserve Board’s Report on the Economic Well-Being of U.S. Households in 2018, only 61% of adults say they would be able to cover an unexpected expense of $400 with cash, savings, or a credit card paid off at the next statement – the remaining 39% did not express the same ability to tolerate an unexpected expense.
Under “normal” circumstances, a common financial planning recommendation is building up cash reserves to cover at least 3 to 6 months of living expenses – others recommend having a minimum of at least 6 months of cash reserves built up, especially if you have others who are financially dependent upon you.
In the time of the coronavirus pandemic and ongoing economic uncertainty, that thinking has shifted upward. If feasible, some believe rainy day cash reserves should be able to cover living expense for 12 to 18 months, given the potential for protracted illness or job loss. However, for many people, this threshold is unrealistically high.
Where to tuck these funds? Many recommend considering something low-risk, easily accessible, and not associated with withdrawal penalties or taxes.
Financial planning if you get sick while at work
The WSJ article also highlights that now is a great time to revisit what type of health insurance policy you have, which providers are covered by it, as well as your employers’ sick leave and benefits policies. It is also a good time to review any employer-sponsored long-term disability insurance. Employer doesn’t provide or self-employed? Now might be a good time to consider obtaining a supplemental policy from a private insurer.
Furthermore, they suggest this could be a good time to think about contributing money to a health savings account (HSA) or flexible spending account (FSA), if one of these options is available to you. Why? Both HSAs and FSAs offer some tax advantages and can be good savings vehicles for providing flexibility in covering qualified medical expenses.
In response to the pandemic, congress passed the Families First Coronavirus Response Act, which is currently in effect through December 31st, 2020. This legislation provides some protections – such as paid sick leave and extended family and medical leave – to eligible employees in the event they or a family member become sick with COVID-19, are under quarantine, or if a child/other dependent of theirs can’t go to school or daycare. Benefits vary and not all business are required to participate, so it is prudent to check with your employer beforehand to get details.
Some cities, counties, states have developed relief benefits as well. For instance, Washington State offers Paid Family & Medical Leave for nearly every Washington worker, assuming they meet eligibility criteria.
Now is a good time to work on financial planning around health- and estate-planning related matters
While always a good idea to have legal documents such as wills, power of attorney, and healthcare proxy paperwork in place, the current pandemic underscores the importance of having them in place now.
Some of these documents can be created on-line, whereas others may be better handled by an estate planning attorney. Now is also a good time to think about other things, like guardianship issues if there are dependent children in the house and helping your college-aged children navigate advance directives so you can be part of their care in a medical situation. It may also be a good time to consider the role of life insurance policies in a long-term financial plan.
Lastly, it is important that you share information with trusted family or friends on where to find and access important documents. Examples include such: legal documents (financial, medical, and insurance records and policies); online accounts and passwords; and contact information for key vendors in your life (such as accountants, estate attorneys, financial advisors, etc.).
While much of the content discussed above is part of “everyday” living and times, the coronavirus pandemic has highlighted, now more than ever, the importance of ‘getting your house in order’.