How to Redo Your Budget During Quarantine
Updated: Apr 18, 2020
I'm hearing from people across the spectrum of income and wealth who are now in a financial bind. A woman from Texas relying on social security and a small income from a client that is now gone. She can't pay the rent. I spoke to a man who invested all of his inheritance in a real estate project that is now on hold, and at the worst possible time since no cash is available and the project is completely illiquid. It's true, he is worth more than a million dollars so why should we worry about him? But he has no cash now, no way to pay the bills. Similarly, a client of mine keeps his investment account at dangerous margin levels in the best of times, now his margin calls are outstripping his ability to keep his assets intact.
A woman who owns a small store called. The business was thriving, until she had to shut it down. She had economized and stretched herself to pay back her investors over the past three years, and now is free and clear. But her clientele is a fickle one, and keeping the continuity with them is super hard. She doubts she will have the working capital to continue to make that effort once this thing is over. The PPP program doesn't help because she has few employees. Beside, she is in California where getting those loans was not easy unless you were a well-established customer at one of the servicing banks. Her landlord is now dunning her for the rent (some landlords are nicer than others).
What to do? When do you pull the plug on expenses that could be reduced but feel like it's not a good idea yet? What about the ones that feel necessary to your work once this thing is over but are breaking the bank now? When do you slash expenses in general? How long should you estimate this thing will last for budgeting purposes?
What about the rent? The cars? The taxes? When do you make super tough decisions, like moving to a cheaper place? Do you stop psychotherapy if it's been really vital? Should you do your own taxes? What about luxuries that feel necessary now that you have to find some emotional relief?
Tough questions to answer. But answer them. Most investments are down substantially and that makes matters even worse, especially if you are at or approaching retirement age. Do you go into retirement savings and pay the tax on them to bridge the gap?
Do you borrow? For that matter, do you decrease your payments to creditors, even below the minimum payments, for now? What about your credit?
I don't have all the answers. Certainly each case is different. But I do know that the quicker you take the difficult steps to keeping your solvency, the easier it will go.
I think it begins with contacting your creditors, landlord or mortgage holder, car loan or lease, service providers like phone, cable, etc and asking them to work out smaller or no payments for now. I think it's super necessary to lay out what you can do without now, and to determine what you should definitely not do without now. It could be time to actually move out of that place if the rent is choking you now.
Whatever the steps, the time to take them is now.