3 Things to Consider If You’ve Lost Your Income, According to This Advisor
With so many Americans feeling uneasy about the economy and their finances right now, we decided to ask some of our financial advisors across the country to share their insights and advice for uncertain times.
Below, Jessica Salazar, a Northwestern Mutual wealth management advisor based in Jacksonville, Florida, offers insight on what you can consider doing if you’ve recently lost your income due to the coronavirus.
Many Americans have been impacted by layoffs, furloughs or have seen their businesses hurt by the pandemic. What advice do you have for people experiencing sudden income loss?
A lot of people have asked me if they should dip into their emergency fund right now. Times like this is what it’s there for — an emergency. Your emergency fund should be in something that’s safe and liquid, you should be able to access your cash within just a few days, and you shouldn’t be charged much, if anything, to use it. Your emergency fund could be in a checking or savings account, it could be in a CD or a bond. You can even look to the cash value in your permanent life insurance in the case of an emergency, but it's important to understand the impact of doing this, so it's a good idea to work with a financial advisor.
People may also be re-evaluating their budgets. Where should they start?
You want to think about your non-essential expenses. You might have some wants, but are they really a need? Could you wait three to six months to purchase them? Make a wish list of things you want to purchase right now, knowing you don’t necessarily need to have them. Then revisit those expenses when your income returns to normal.
For essentials, see where you can reduce or cut back. That might mean ordering groceries online or managing your meals by planning out the week. You’ll also want to avoid overpaying on student loans or making an extra mortgage payment. Use that extra cash to beef up your emergency fund if you don’t have enough to help you feel safe and secure, typically enough to cover six months’ worth of expenses.
Another good place to look is monthly subscriptions, whether it’s for clothing or magazines. Is there anything that arrives routinely that you could live without? Now might be the time to freeze or put it on hold until you feel secure again to start it back up.
What about 401(k)s contributions? Should people reduce what they are putting away toward retirement?
If you still have your job and there’s no sign of losing your job, stay the course and keep investing. If you think there might be a chance you could lose your job or get furloughed for a period, consider reducing your contribution to the amount you would need to meet your company match; you can reduce it even further if you’d like to put some of that money toward building your emergency savings.
If you’ve already lost your job, one thing to consider is rolling over your 401(k) into an IRA, or if you find another position quickly, you can roll that money over into your next employer’s 401(k) plan. But work with your advisor to go through options for your retirement accounts. You don’t want to pull from a 401(k) prematurely or reallocate your funds to something safer if you’re more than 10 years away from retirement. You will have time to recover from a down market, so do what makes sense for your long-term goals.
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