I’ve received a fair number of texts and calls during this COVID pandemic looking for advice and recommendations on personal finance. I guess it’s good to see that folks are using this weird time in life to refocus a bit on their personal finances and make sure that they are doing all that they can and that their money is working hard for them! In case you’re quarantined at home wondering the same thing, I wanted to offer up some of my thoughts on personal finance topics you should be thinking of, and how you should be thinking about them!

Emergency Fund

If going through a crisis like COVID-19 hasn’t caused you to think twice about the importance of your emergency fund, I’m not sure what will! With 15% of the US population being laid off, everyone probably knows somebody personally that has been laid off, if not having been laid off or furloughed themselves. It’s certainly a terrifying thought or experience to go through. Suddenly your source of income is taken away, and you might be left with 2, 4, 6 weeks of severance pay, and that’s if you get any at all! After coming out of a likely state of shock and utter surprise, reality will start sinking in and you’ll start realizing all the bills that you normally pay will still need to be paid. Rent/Mortgage are still due on the first of the month, as is phone bill, Internet, student loan or credit card payments and of that’s before you allocate any money for actually living – like groceries or gas! 

Everybody needs an emergency fund. I don’t care how rich or how poor you are; everybody needs one. It’s not a matter of if, but when you’ll end up needing it. Ideally you’ll have 3-6 months of expenses stocked away, in a separate bank account, just sitting there waiting for you if you ever need it. If that seems pretty difficult or near impossible to do, imagine how paying 3-6 months of expenses would feel without any income? If you’re trying to get started and stretched pretty thin, start small. Put aside $10, $20, $50 or whatever you can reasonably do until you get to $1,000. Set that as a goal for yourself. From there build up to 3 months, then 6. Having that there as a peace of mind will do wonders for your psyche, and although you’ll freak out when an emergency does pop up, you’ll freak out slightly less! 

High Yield Savings Account

Most banks pay pennies in interest, maybe something like 0.01% on your savings accounts that you keep with them. If your money is just going to sit there in a savings account, shouldn’t you earn as much interest as possible? Sure it might be the difference between earning $10 and $100 over the course of a year, but I’d rather still have the extra $90. Especially when there’s not additional risk – the FDIC also backs high yield savings accounts, which is the governments guarantee on your money. 

I do still have a savings account at my ‘main’ bank, where I have a checking account and a credit card too. I suppose I like knowing that I’ve got money stashed right there in case I needed it quickly. The rest of my savings money is in online banks that pay way more interest. The two that I use are: Capital One and American Express. Ally is another good one I’ve heard of. No fees, no fuss, all online, and way more interest. Put your money to work where it’ll work the hardest. 

Investing 

It may seem weird to be talking about investing during a pandemic, when so many of us are losing jobs or getting furloughed (20+ million here in the US), but there are some folks that I’ve talked to that are still investing and are curious to learn more. After contributing to retirement and savings, excess money can make sense to be invested in the stock market. Historically the S&P 500 has grown on average 8% each year. Of course there are period of time where it does less, or more, so if you’re just putting in money for one year don’t expect an 8% return, but over time stocks have proven to be a successful investment category. 

Picking stocks can be overwhelming, confusing, exciting, and risky. I like to say that the stock market is a wild animal, and it’s very tough to predict what it’ll do. Even the experts frequently get it wrong. To that end, I put 90% of my money into index funds. An index fund is a type of mutual fund, which is a fund that purchases a basket of stocks. Mutual funds can purchase a variety of stocks, and typically do so based on the ‘charter’ of the mutual fund. For example, a large cap mutual fund will invest in the biggest companies, and a small cap will invest in smaller, up and coming publically traded companies. 

An index fund takes the money you put in (along with the other thousands of investors doing the same thing) and essentially buys all the stocks traded on the stock market. Doing so is considered much lower risk because your eggs are in so many baskets. Remember my point earlier about the stock market averaging 8% year over year? An index fund is probably the closest investment to mirroring that return – because an index fund has essentially purchased the whole market! Index funds are great also because of their low fees. Mutual funds take time and energy and people working on them to run, and so the companies running them take a fee. Some mutual fund fees can be as high as 2%. High fees are a quick way to eat away at your returns. Index funds typically (don’t invest if they don’t) come with low fees. 

For me personally, I like the Vanguard Total Stock Market Index Fund, stock ticker $VTI (the dollar sign indicates it’s a stock). It’s super low fee and does the job well! 

Refinance 

If you have debt, you’re well aware that at the time of borrowing the money, you agreed to pay it back over a certain period of time at a certain interest rate. Whether it’s a mortgage (house loan), car loan, student debt or credit cards, you’re hopefully diligently paying away at it each month. Refinancing involves re-borrowing the money. For a few different reasons; whether to lower your monthly payment (i.e. you’re 5 years into a 30 year mortgage and then borrow the same amount of money again at 30 years which would stretch out your payment a bit smaller) or to lower your interest rate (interest rates are always changing and you may find that rates are very low) or to cash out equity (typically on a home, borrowing money again). 

The one I’d like you to think about now is the interest rates. Interest rates have really fallen during COVID-19. For example, in November of 2018 we purchased our house at 5%. Summer of 2019 interest rates had fallen to 3.875%. We refinanced our loan at the lower interest rate. It ended up costing us probably $1,500 in fees but that lower interest rate would save us thousands over the life of the loan. Every situation is different, but here’s a good calculator I found online to help you figure out if it’s worth it to refinance and what it could save you long-term. If you’re interested in refinancing, I’d recommend checking out Better or RocketMortgage, both of which are online lenders and make it super easy. I’ve used Better twice now and have nothing but good things to say about them. 

Same goes with student loans – you can refinance those too. Only downside is that you can lose government guarantees (like income based repayment or forgiveness) but if those don’t apply to you, refinancing student loans can make a lot of sense. Same goes for online lenders; Earnest and Sofi are two of the bigger ones. (In the interest of transparency, I have an affiliate relationship with Earnest but would recommend them regardless). 

Take advantage of low interest rates while they’re here! 

Insurance 

As my brother-in-law always says, no one likes paying for insurance until you end up needing it. In the past few years; I’ve had my car stolen, Mrs. Money has been in an auto accident and we’ve had a tree branch fall through our roof. At each of those times let me tell you I was very thankful for insurance, and thankful that it was good insurance. A young professional should of course have auto insurance (hopefully yours is giving you some discounts or rebates during COVID-19, mine is!), renters insurance if you rent (seriously, it’s super affordable) and homeowners insurance if you own. You likely get health insurance through work. You may also be thinking about life insurance too. I personally am a big believer in term life – which is the simpler more affordable type of life insurance. I get extra coverage through work and it’s nice and easy. Whole life is a lot more confusing, even for a financial blogger like me and I just don’t like the idea of life insurance being confusing and walking away from conversation with sales people feeling that way. 

COVID-19 is potentially a good time to at a minimum review your policies and ensure you’re adequately covered. Things may change in your life from time to time and it’s important to have the right coverage. Also as you’re just hanging at home with time on your hands, do a little shopping around online. Never hurts to compare rates and options for what’s out there! 

Summary 

We’re definitely living in weird times right now, and I truly hope everyone is doing well and staying safe. Use this downtime to take a look at your personal finances, there may be a few little things here and there that you can work on or take action on that’ll make a big difference for years to come!