Coronavirus Could Lead to Epic Financial Collapse for Small Biz and Average Americans - Almonte
David Almonte, Guest MINDSETTER™
Coronavirus Could Lead to Epic Financial Collapse for Small Biz and Average Americans - Almonte
Like many natural disasters and past epidemics, the destruction can be devastating, but what people forget is the carnage left behind is often even worse than the disaster itself.
The Wall Street Journal’s recent article, “Coronavirus Crisis Legacy: Mountains of Debt” outlines the carnage that will be waiting for millions of Americans whenever we’re able to return to “the new normal.” Let’s face it, things won’t be exactly like they were before coronavirus; they never are following a major global economic shakeup. It’s not the rattlesnake bite that kills you; it’s the venom coursing through your body in the hours that follow that does the most damage. The virus is the snakebite, and the financial devastation that we’re already seeing across the globe is the venom.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTWe may not know the full financial impact for quite some time, but it’s clear the American consumer is in trouble. Prior to coronavirus, studies found that almost 40% of Americans would struggle to come up with $400 for an unexpected expense, almost 58% of Americans had less than $1,000 in savings, and 15% of Americans had absolutely no retirement savings.
If the average American struggled to meet these financial guidelines prior to coronavirus, you can rest assure that the financial situation waiting around the corner is going to be ugly. More than 16.6 million Americans filed for unemployment (which typically only replaces up to 40% of an individual’s income) in just the last two weeks, and many more are likely to join them in the weeks ahead.
Coronavirus has forced businesses across the country to close their doors and, unfortunately, many of those businesses may never re-open. Rhode Island, in particular, is home to almost 100,000 small businesses, accounting for almost 99% of total businesses in the state. This is a major reason why Rhode Island is often the first to fall into any economic downturn and the last one out. As with many economic issues of the past, Rhode Island will be hit harder than most.
So what can you do to either improve your personal financial situation or at least limit the downside during these uncertain times? What if you, like most Americans, don’t have any savings, never mind an emergency fund, or lack any sort of retirement savings to fall back on in a worst-case scenario?
Here is a shortlist to help:
1. Take a current inventory of all income and expenses. How many dollars are coming in each month and from where? How many dollars are going out each month and to where? This will provide you with key data needed for step #2 below.
2. Create a pre-virus budget and then update to account for the virus’ financial impact. This is the time to sort your expenses (captured in step #1 above) into true “needs” and “wants.” Do everything you can to instantly cut down on the “wants” in your budget and shift those savings into an emergency fund, if one does not exist already. Check out this great article here with links to free online budgeting resources available.
3. If your budget has taken a hit due to recent events, think of ways to either increase your income or decrease your expenses. Are you able to get a gig job, sell possessions or turn a hobby into a side hustle? Are you still making a trip to the local coffee shop or paying for an online streaming service? Find ways to trim back the fat where you can.
4. Resist the urge to stop contributing to an employer-sponsored 401(k) plan, especially if your employer is offering a match. Use dollar-cost averaging to your advantage and never turn down free money, which is exactly what an employer match is…free money.
5. Build a rainy day or emergency fund. Americans should put aside enough money to cover six to nine months of expenses if an emergency, such as a lost job, were to occur. If this task seems too big, break it down into bite-size pieces by setting up a $10 or $25 monthly transfer each month into an emergency fund (and watch the power of small, consistent contributions grow over time).
6. Take advantage of free resources. Did you or your significant other lose a job? Are you eligible for unemployment? If so, file right away (link here is for RI residents only). Are you eligible for a stimulus check from the recent CARES Act? If so, come up with a proactive plan as to what the money should be used for? Are you a homeowner with a mortgage? Are you able to take advantage of the historic low-interest rates and refinance? Contact your service providers, landlord, mortgage company, etc. and ask what free resources may be available to you (be sure to understand any negative financial impact that may come along with such resources – i.e. impact to credit, etc.). If you are a small business owner, are you eligible for stimulus under the CARES Act? Do you have student loans issued by the federal government? If so, you may be able to take advantage of 0% interest for the next six months (keep in mind you still owe the money and will be responsible for resuming payments at the end of the six months - if that window is not extended). Be sure to utilize free online financial templates and tools such as those provided by the AICPA.
7. Do not panic. Reach out to a CPA or other financial expert in your network and come up with a financial plan. Stay away from payday loans (and credit card cash advances for that matter) as they often come with extremely high-interest rates and pray on those in financial trouble without a good plan. Think of these loans like trying to put a band-aid on a gunshot wound; it may buy you an extremely short amount of time, but fixes nothing and actually makes things much worse in the long run.
If there’s one takeaway, let it be this: No matter what financial shape you may be in today, do everything you can during these uncertain times to make sure you and your family come out on the other side stronger and more financially capable. If that’s not possible, take an inventory of your income and expenses, create a budget, come up with a realistic financial plan to help you get by for the next 30, 60, 90+ days and execute that plan to the best of your ability. Above all, remember that it’s okay (and admired in most cases) to ask for help when needed. You are not alone, even though we may feel farther apart from one another than ever before. At the end of the day, we are all Americans, and our strength has always been found in our ability to rally around one another in times of crisis.
David is a member of the American Institute of CPA’s (AICPA) National Financial Literacy Commission as well as a 2014 graduate of the AICPA Leadership Academy. David was also a 2015 graduate of the RI State Police Citizen’s Academy. He is a Financial Reporting and Analysis Manager at Amica Insurance
In early 2017, David co-founded FountainHead RI, a not-for-profit that aims to connect like-minded individuals with diverse backgrounds who share a similar passion, vision and ambition for moving RI forward.
David has received the following professional awards: GoLocalProv "18 Who Made a Difference in 2018," CCRI 2018 Outstanding Alumni - Squire Award, 2019 CPA Practice Advisor 40 under 40, and 2020 Rhode Island Inno "Inno On Fire" Award.