So, the world has completely changed, suddenly, and overnight. There are a lot of unknowns. Including the unknown of how much longer we will be in a lockdown and what will be the long-term economic impact of COVID-19. Rumors and fear abound; and the possibility of a recession, coupled with an inflation, is looming towards us. This uncertainty can facilitate a state of discomfort or even panic for many; however, this is a great time to rethink, reprogram, and refine your business and personal finances and consequently, implement new strategies that may have taken a backseat before. Some of these strategies are rather basic, but in uncertain times, going back to the basics could very well be the most impactful approach.
Put Everything on Paper
The mind is an incredible thing. Take control of your thoughts, and you are ahead of the game. Money is highly emotional and behavioral, so it is paramount to take the emotion out. Tracking, reviewing, monitoring and improving your financial life has a powerful effect on your mind, and turns the invisible back into the visible. Once you have the facts, you can create a plan. This may seem scary at first, but it is important to look at your situation head-on, rather than hope for the best. Hope is not a plan.
Awareness is Key
Start by defining your expenses and your debt. Get out pen and paper, or better yet, use a spreadsheet, or an accounting app (like Quickbooks or Mint) and make sure that every source of debt, loan and expense is accounted for.
Once you have all of the expenses outlined, create a budget. Whether your monthly income stays the same or fluctuates, it does not matter. Plug in which bills will be paid as the money is coming in. If you are heading in a negative direction, that’s ok, because now you know, and with this awareness, you are now empowered to start making some decisions.
Next, analyze your spending. This is the time to CUT THE FLUFF! Remember, even small cuts add up quickly. The goal is to live within your means without using credit.
Many people make the mistake of looking for more revenue and sales first, and only then they will tackle their debt. However, you need to understand and have control of your budget first. When you do this analysis, the money no longer controls you, you are now in control. And consequently, you do not feel like you are denying yourself. Instead, you are dissolving debt and BUILDING EQUITY.
It’s a good time to contact your electric, cell phone, internet and insurance companies. Ask for a reduction in rates. Communication is key to getting great deals. If you don’t ask, you won’t get a deal. And sometimes it depends on whom you speak to. So, if you are turned down, call back another time. Companies are always trying to sweeten the deal for new customers, but they are also willing to give better rates to existing customers.
Hold Onto Cash
In this uncertain economy, it is a good idea to hold onto your cash. Contrary to popular opinion, now may not be a good time to pay off that credit card bill. Instead, move high interest debt to a lower interest alternative, such as line of credit or a low introductory rate card. Or, contact your credit card company and ask to reduce your rates. Make smaller payments that fit within your budget. It is better to decrease your debt slowly than to add on more debt. When the economy is this uncertain, keep your liquid cash available, but DO NOT increase your debt. In tough times, this could be a tough balance, however your budget will tell you what this balance is.
Use Your Bank Strategically
It helps to be aware and understand your own behavior and habits towards money. Know yourself and your habits, and you will have a strategic advantage over millions of others. Personally, I believe in having several checking and savings accounts for both business and personal use. This way I can separate money into buckets and let the money build overtime.
When you receive money in your business or get paid, move a pre-determined portion of the money into your different buckets, such as tax, payroll, mortgage, rent, loans, vacation, savings, etc. This will allow you the opportunity build up the funds in those buckets throughout the month; and and possibly make it easier to pay your highest expenses, even when your income is variable.
Make sure to understand the minimum requirements and take advantage of free accounts at your bank. Check the fine print so you don’t pay bank charges.
Check Often for Help
With the COVID-19 pandemic, there have been new announcements from state and federal governments daily. More announcements are coming, so be sure to keep checking.
The Small Business Administration low interest disaster relief loans may be the lifeline your business needs right now. Have a business plan in place or work with a professional who can help you analyze your financials and advise you how best to proceed. Analyze what makes sense for the health of your business now and long term.
The IRS authorized an automatic 90-day extension of the April 15th deadline. If you believe you will get a tax refund, you should file right away. If you believe you will owe money, file your taxes now and just get it off your to-do list. However, wait to make the payment until the July 15th date. Hold onto that tax money in a separate account and do not to spend it; it isn’t yours.
Mortgage companies affiliated with Freddie Mac and Fannie Mae and all electric utility companies have announced that they will work with you if you can’t make your payments. However, be very careful; you will still need to pay these bills. DON’T GET BEHIND. It is very difficult to catch up. Better to get a low interest loan, or cut your spending, but don’t get behind in payments.
Unemployment insurance programs are ramping up. Unprecedented actions are being taken to protect small businesses and the workforce. Check on your local and state programs. Many have no wait time and have simplified their application process.
Numerous grants, funds, and loans are available in each state. Some have no interest or no repayment, but they are for businesses that can prove loss during the COVID-19 disaster. Check often, but apply early. Something will appeal to your needs and could make a big difference.
The state of Maryland has approved marginal unemployment. If an employee’s pay is cut by a percentage,
then they can still qualify for unemployment help and the business may be able
to stay in business through this tough time.
Don’t wait for opportunities. Actively network virtually, build momentum and build relationships so you can hit the ground running. Check out opportunities for subcontract work on Upwork, Fiverr, AngelList, LinkedIn and others to bridge the gap in income, or to create a new source of revenue.
Have Hope AND a Plan
This is a tough time, but you can make the difference between surviving and thriving by taking action. This isn’t the time to relax and wait. Be nimble, think out of the box, build momentum, and most importantly, take the mystery and emotion out of your finances by practicing the steps above. And remember most of all, every obstacle that comes your way is an opportunity to show up and to thrive.