Ever since COVID-19 became a global pandemic, many people have had to make significant adjustments to their daily lives. Many people have started to work from home, wearing masks in public is no longer unusual, and how we manage our money has changed.
I’d love to tell you that sticking to traditional money advice such as staying the course and not touching your investments is the thing to do right now, but the reality is, so many things are different now. We’re at a time in history which we would never have imagined, which is why it may make sense to make some unconventional money moves.
I have never been a fan of deferred payments. It used to drive me nuts seeing ads major lenders offering homeowners the opportunity to skip a payment or two so they could take a vacation or do home renovations. It’s not like your lender was giving you free money, your skipped (or deferred) payments would be added back to your mortgage with interest. In the end, you would pay more, which is why I would never recommend it.
Deferred payments have become more common as lenders and credit card providers are allowing them on a case-by-case basis to help during the pandemic. If you’ve lost your job and have limited income to survive and pay your other bills, then yes, defer your payments. If losing your job has put you in a financial crisis, you may have a bigger issue that needs to be addressed.
Don’t pay off any low interest debt
Even if you have money to make your low interest debt payments, it might make sense to hold off depending on your situation. For example, let’s say you’ve recently been laid off or you think you’re going to lose your job in the near future, it wouldn’t necessarily be a bad thing to hold onto some extra cash.
This strategy only works if the debt you currently have has favourable terms. For example, some people who have student loans may qualify for 0% interest deferrals. Alternatively, your line of credit may only require interest-only payments, which may be low depending on how much you owe. You could also use a balance transfer credit card since it may give you low interest rates for 6-9 months.
Remember, you still owe this money, and it will need to be paid back. You’re just deferring your payments, but you’re doing it as a personal choice instead of out of necessity.
Increase your emergency fund
So what do you do with that money you’ve been deferring? Increasing your emergency fund could go a long way.
Before this pandemic started, most personal finance experts (including me) recommended having an emergency fund of 3-6 months worth of expenses. The idea was that if you ever got laid off, you’d have enough money to cover you until you found a new job.
This pandemic has been going on now for quite a few months already, so people who have dipped into their emergency fund might be feeling a bit nervous. If you’re in a situation where you can increase your emergency fund, you may want to do so. It’s not like you need precisely 12 months worth of expenses saved in a high interest savings account. You could just aim to have enough money to stretch up to a year if you cut your costs.
Cash in your points/miles
If you’re using one of the best travel credit cards, the odds are you were saving your points for travel. Considering that travel is nearly impossible right now, you may want to cash in your points for gift cards or a statement credit.
Usually, this would be a terrible idea since as you’d get a lower redemption value compared to travel, but a few credit card providers have temporarily increased the value of your points. Depending on what credit card you have and what promotions are currently active, you could be getting more value out of your points.
Some credit card providers have also increased the earn rate on some purchases for a limited time and introduced other special offers to help you get more bang for your buck when you use your credit card.
Sell your investments
When it comes to your investments, the golden rule is to always stick to your plan. Drops in the market are normal. As long as you have a diversified portfolio that aligns with your risk tolerance, there’s no reason to panic and sell.
That’s a good strategy in a normal situation, but no one ever anticipated a worldwide pandemic. You should definitely leave things alone if you don’t need the money, but if you’re running into cash flow issues, selling some of your investments (even at a loss) might make sense.
You don’t need to drain your entire portfolio right away, just withdraw what you need to get by for a month. If you need another financial injection, do it on a month-to-month basis so you can dollar cost average any losses.
We all have a plan for our money but rarely do things go the way we thought they would. COVID-19 has forced many of us to make difficult decisions about how we spend and save our money. Any moves we take now will set us up for a better future.