Managing Finances in Times of Crisis
A Walden University expert shares tips for keeping your budget on track during chaotic times.
As millions of people sheltered in place to prevent the spread of the coronavirus (COVID-19), we were reminded of the importance of being prepared, not only for the short term but also for the weeks and months following a natural disaster.
While we can’t prevent hurricanes, wildfires, and other potential threats, we can make plans to help buffer any financial crisis they may bring. It’s never too soon to start crafting a financial plan, which is one of the critical elements of a disaster-preparedness blueprint.
“Running away from a natural disaster to a safe haven physically can be quite different than running away from one financially,” says Dr. Bob Castaneda, a global senior finance executive and Walden University program director. “Natural disasters can take both an emotional and physical toll on anyone experiencing the event. Anticipating and planning for a natural disaster can help to remove the emotions from decision-making.”
What can individuals do to prepare financially for a crisis such as an earthquake, flood, wildfire, pandemic, or hurricane? First, if evacuating your home may be a possibility, Dr. Castaneda offered the following suggestions:
- Set up an emergency fund in a bank or other safe location until you need to withdraw the funds. Depending on family size, have about $60 to $70 per day for each family member in an emergency fund for about a week’s worth of needs. Accumulate the funds over time in a separate savings account so that you can access the cash as needed.
- Prepare a financial documents kit so that it’s ready to grab and go in the event of an emergency. Include items like passwords, wills, titles, lists of assets, photographs, medical information, Social Security cards, passports, and naturalization documents. Let your loved ones know where they can find this assemblage of documents in case of emergencies.
- Keep all medications, credit and debit cards, and cash at hand in case evacuation is necessary. Make sure your pool of cash includes enough money to fill your gas tank three times.
- Talk to family members about what your evacuation plans are, including where you will go, who you will stay with, and what to do in case you become separated. Practice your plan if possible.
Facing a Job Loss
If you lose your job as the result of a natural disaster or other emergency, it’s important to act quickly to assess and manage your financial resources, Dr. Castaneda said.
“The first thing to consider if one loses their job is to identify what funds will be coming in from unemployment, severance, etc., as well as what discretionary and mandatory expenses are being incurred,” Dr. Castaneda said. “Think about what expenses can be cut right away without ‘burning down the barn.’ If you determine more is going out than coming in, look again at your budget and be prepared to cut expenses as needed.”
Dr. Castaneda shared these expense management ideas:
- Identify the most important expenses to be paid, such as prescription medicines, food, housing, insurance, and communications (e.g., internet and cellphones to stay in touch with family members and for job inquiries). “Other items, such as credit card payments, dues, subscriptions, gym memberships, and car payments, may be set aside and/or [you can] call the company to let them know you may need more time to pay your bills,” he said.
- Review home and auto insurance policies to see if you can raise your deductibles or change policies (e.g., full coverage versus liability coverage only). Consider eliminating cable TV or streaming services and reducing utility costs by lowering the heat or inching up the thermostat on the air conditioner during the day.
- Target a dollar amount for monthly expense cuts. “Think hard about how you can get there by making this a family affair,” Dr. Castaneda said. “Studies show that getting others involved in your budget can go a long way in helping you meet your goals.”
- Paying for medical costs can bring on additional anxiety for those suffering from a job loss. Several options exist for individuals and families struggling to find health insurance coverage, including:
- COBRA—This federal law lets you pay to stay on your employee health insurance for a limited time after you lose your job, up to 18 months.
- Medicaid or Children’s Health Insurance Program (CHIP)—These programs provide health coverage to low-income adults, pregnant women, and children, among others. You will need to check with your state to see if you are eligible.
- Federal Affordable Care Act—This act allows you sign up for a policy on a health insurance exchange within the first 60 days of losing health coverage through your employer.
- Charity care—Many hospitals have charity care programs for low-income patients who can’t afford to pay full price for healthcare services.
- CARES Act—If you have COVID-19, $100 billion in stimulus money has been set aside for the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which will pay for testing and treatment for the uninsured.
- Medicare—Baby Boomers are eligible to apply for coverage once they hit age 65.
As you consider how you’ll make ends meet after losing your job, withdrawing funds from a 401(k) should be a last resort, Dr. Castaneda cautioned.
“It’s very easy to remove funds from a 401(k), but it takes time to replenish them,” he said. “Most fund managers will not allow the participant to withdraw any funds unless they have a complete withdrawal or a roll-over of funds into another account. This is an important point to consider, as one can have an unexpected tax burden if not properly planned.”
Planning for the Future
According to a 2015 report from the Federal Emergency Management Agency (FEMA), 80% of Americans live in counties that have been hit with weather-related disasters, but only 39% have developed emergency plans, Dr. Castaneda said.
“FEMA also reported in their March 2018 report that as an individual’s income goes up, they are more likely to take action to prepare, and that as income decreases, they are less likely to set aside money for emergencies,” he said.
If you’re employed—or when you’re back in the workforce again—resolve to start building an emergency savings fund. Having three to six months of expenses in the bank can go a long way toward helping you weather any future storms.
Choosing an Accounting Career
If finance is your passion, as you plan for the future you may want to advance your career by earning an online degree. Walden University, an innovative leader in distance education, offers a Doctor of Business Administration (DBA) with a specialization in finance.
Walden University is an accredited institution offering online bachelor’s, master’s, and doctoral degree programs, including a Doctor of Business Administration with a specialization in finance. Expand your career options and earn your degree using a convenient, flexible learning platform that fits your busy life.
Dr. Bob Castaneda is a Walden University Program director. He brings a great deal of expertise to Walden’s College of Management and Human Potential, including experience at companies including American Express, PepsiCo, and McDonald’s Corporation, and is a member of Financial Executives International, the American Institute of CPAs, and the Illinois CPA Society.
Walden University is accredited by The Higher Learning Commission, www.hlcommission.org.