Why you should pay your rent or mortgage during the COVID-19 crisis

The health and economic ramifications of the coronavirus outbreak seem to get worse with each passing day.  Despite a massive stimulus plan passed last week, retailers announced the furlough or layoff of approximately 600,000 workers.  Top management at many firms are taking huge pay cuts for the time being and even corporate-level employees are getting laid off.  So it seems that paying rent for so many of these people should be the last thing on their priority list, right?

Wrong. 

Even if you don’t have the cash to make your April 1st, 2020 payment, on-time, whether for rent or mortgage, you should try to reach out to your landlord or mortgage servicer and let them know today, rather than in two weeks.  While the ramifications of the COVID-19 outbreak aren’t your fault, they also aren’t your landlord’s fault.  Landlords, and even the large companies that own apartment complexes, depend on rental income to pay their employees and put food on the table.  They are still obligated to fix your unit if something goes wrong and maintain the grounds whether that entails plowing snow or greening up the grass as spring arrives. 

But I lost my job and was living paycheck-to-paycheck before all of this happened!

This situation is totally understandable, and millions of Americans are feeling the pinch.  It is estimated that 78% of U.S. households live paycheck-to-paycheck.  However, you should have applied for unemployment benefits and with the increase of up to $600 per week in benefits, you should be able to make good on your rent between that and your stimulus check due in about three weeks if you received your last tax refund via direct deposit.  Sit down and make a budget.  The first thing you need to do is eat, second, pay utilities, and third, pay rent or your house payment.  If you are in a bad predicament, don’t be afraid to take advantage of food stamps or local food bank programs.  It may be a hit to your pride, but help is out there if your situation is so bad that you have to choose between food, heat, or paying to keep the roof over your head.

Turn your financial life around!

If you are scared and worried about your finances and cannot make good on your obligations, this is the best time to turn your financial life around.  Visit Dave Ramsey’s site to get tips on turning your finances around.  Not being able to pay your rent should scare the living daylights out of you and make you want to question how things got so bad, so quickly.  While it is nice that many governors and mayors have outlawed evictions, foreclosures, and late fees for the next 90 days, eventually, you will have to pay the piper.  I’m sure you have heard the saying “there’s no such thing as a free lunch.”  The same applies for rent.

Think about the big picture

When you don’t pay, you are contributing to the continued slowing of our economy.  Believe it or not, it’s not just big shots on Wall Street who have investments.  Most mortgages are securitized and managed by real estate investment trusts, or REITs, which have issued stock and are owned by little people through mutual funds in 401(k) plans.  Moreover, if the Fed buys mortgage backed securities to get more cash into the economy, it’s the taxpayers (you and me) who are on the hook when people don’t pay.  So do what you have to, but try to pay for your housing as soon as you can.  With dedication and perseverance, our situations will improve, and hopefully your financial habits will change for the better so you can weather the next economic storm with a healthy savings account.

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If you lost an income stream or have seen a decrease in pay, what are you doing to keep your bills paid? 

What chould you be doing with your money in these unprecedented times?

As I write, our economy is coming to a screeching halt.  Life is going from freedom to confinement at home.  It almost feels like you are taking your life in your hands to leave to go to the grocery store, where controls have been set up to stop overcrowding and hoarding of commodities.  Large, multi-national companies such as GUESS, Bath & Body Works, and The Cheesecake Factory are either closing their doors for at least ten days or highly modifying operations to combat the spread of COVID-19 (Coronavirus). 

Hopefully you aren’t on the receiving end of any financial impacts from these closures through layoffs or furloughs.  If you are, I send my best hopes that you have a plan in place and an emergency fund.  Our leaders in Washington are trying to minimize the impact of this outbreak on our economy.  Today there is talk of potential cash stimulus being sent out in the form of $1,000 or more checks to individuals.  Such drastic measures seem to be gaining bi-partisan support and if leaders really do act swiftly, we could see money in the next two weeks.  So, what should you do if you get some extra money from the government?

First, remember why this money is being sent out:  to help people cope with unexpected expenses or loss of income due to COVID-19 impacts.  Perhaps you end up getting laid off from your restaurant or retail job, without pay?  You need to save this money or keep the lights and food going in your home.  If you do lose your job, try applying for unemployment insurance through your state.  Don’t be too proud.  It is meant for us in times of need! Even if you are currently secure, the most prudent thing to do would be to add this to your savings for now.  Perhaps in a few months this will all be over and will be remembered like an apocalyptic movie.  If that scenario pans out, then go spend your windfall this summer.  The worst-case scenario would be you losing your job due to a continued downturn in the economy.  In this case, you again need that extra money.

Image credit: https://tenor.com/view/trump-stock-market-explosion-down-gif-16459871

For those of you with investments that are tanking due to the markets almost literally going off a cliff the last two weeks, just hang tight.  Hopefully you weren’t planning on retiring in the next week or two since you hadn’t reallocated your funds, so you’re in it for the long run.  Just keep working as long as you are gainfully employed and contribute like you have been.  If you can, it is a good time to ratchet up your contributions because stocks are on sale and your contributions to retirement plans buy more shares! 

If you have cash well beyond your emergency fund of three to six months, it may be a good time to buy up some cheap stocks now, or in the near term, of companies that have been dragged down but have great long-term prospects.  I can’t believe how discounted UPS and FedEx shares are since people are now stranded at home in many areas with only e-commerce to scratch that retail therapy itch.  Also, some strong retailers such a GUESS and American Eagle Outfitters have seen their stock dump by as much as 75% since last month.  Although they will be closed for ten days, it is highly unlikely solid companies will go under and within a year, it is likely share prices will return to where they have been in the past year.  If stock picking isn’t your game, then buy an index fund that follows the DOW or S&P 500.  If you have cash to invest now, it is likely you will see the biggest rewards for buying when everyone else is running for the exits.

These are just a few suggestions on how to manage your money in these uncertain, yet opportunistic times.  I would love to hear how you are managing your finances today.  Are you doing the same thing as before, are you saving more, investing, or doing something completely different?  Leave a quick comment below!

It’s also a great time to give money or time to those in need!  If you can spare it, see if you can support those in need in your local community.