One of the most difficult things with the current situation is that there is so much that we don’t know.  In the financial realm, this spills over into income particularly.  In a way, this is very similar to being self-employed – income can be irregular, so you always need to be prepared for a slowdown or a gap (sound familiar?)

There’s an exercise for the self-employed that has suddenly become relevant for everyone.  When you work for yourself, it is important to keep an eye on things so that you always know how long your finances could carry you if no new work comes in.  In these times as incomes are changing with short warning, and unemployment and stimulus cheques are taking their sweet time to arrive, this exercise can help you map out the road ahead, guide your planning, and hopefully give you some peace of mind.

The gist of it is simple:

• first, write down how much you have in savings. By this I mean your emergency savings – ideally you don’t want to touch your retirement or college savings.
• Then, write down how much your monthly expenses are. If you already have a budget, you have this number, otherwise compile the most complete list you can.
• Lastly, look at how much known income you have coming in each month (to the best of your ability). If it is hard to figure out, then shorten the timeline and just write down how much you expect to receive in May.

Now you can start to see how much the gap is each month, or at least for this month.  Based on that, you can see how much you will need to pull from savings, and that in turn will give you an idea of how many months your savings could last.

Here is an example of the whole process to make it clearer:

You can see that that this hypothetical household has a $2,000 per month gap, so they will need to draw that from savings to cover their expenses for the month.  Since they have $6,000 in savings, their savings will last them for three months at that rate.  Now if more money comes in in the form of a stimulus cheque (savings) or unemployment (income), then they can add those to their numbers and recalculate.

What if the household has less in savings, and can only go perhaps a month or two?  In that case, it would make sense to take steps now to defer expenses, in order to stretch out how long you can go.  Obviously this is a fine time to turn off any automated savings.  Anything that you could buy next month, put it off.  Contact your mortgage company or landlord for a reduced payment, and your car loan or other lenders for reduced interest rates (a good idea anyway) or reduced payments. Just make sure when you do this that you set it up so that the whole deferred amount won’t come due at one time – ask for it to be phased back in, or for mortgage/debt payments to be added to the end of the loan.  Student loan payments are already automatically deferred in the U.S.

Things are changing so quickly with this situation that it is hard to see very far down the road, so re-do your numbers again at the end of the month.  Hopefully each month things will get a bit clearer.  And, just as if you were self-employed, if this situation goes on more than two or three months, it may be time to start looking for a new income source.  See the bottom of this email for a new resource I found for that.

If you have any questions about your situation or how to evaluate your outlook, drop me a line.  I am still doing sessions! – everything on videoconference now – so if you need a session or would like to set up a class for your adult children or your church, or a talk for your book club or your workplace, give me a call.

Resources:

There are some job-search websites that focus on remote work, so check these out if you are looking for new opportunities: flexjobs.com, remote.co, WorkingNomads.co, WAHVE.com (for “vintage experts” 🙂 , specific to insurance professionals) and RatRaceRebellion.com.  As with anything you do (ever), keep an eye out for scams.  Apparently these sites screen for legitimate employers.

Note that any resources that I find these days I am posting on my Facebook page, so stay in touch with that for updates.  The information is primarily US-focussed, but feel free to send me information for your region or to post it in the comments.