The COVID-19 pandemic has injected uncertainty into every aspect of our lives-including how we’re supposed to handle our finances. Millions are now jobless, have been furloughed, and are watching their investment portfolios take a big hit.
It’s understandable that financial worry may start turning into panic. However, panic often leads to financial mistakes. Before you make any big money moves, consider these 11 financial mistakes to avoid during the pandemic.
- Tapping into your 401(k).
It can be so tempting to get some of the money that’s sitting in your 401(k) right now, but it’s best to leave it where it is. There are rules in place to discourage you from accessing it too soon.
If you try to take money out before age 59 you’ll be hit with a 10% penalty, plus you’ll have to pay taxes on that money.
- Forgetting to save.
Even during a pandemic, you’ll want to continue socking money away just as you always have. You always want to have something to fall back on should you continue to experience hard times.
Watching your savings account as it continues to grow will also help reduce some of the financial anxiety you may be feeling.
- Splurging.
During stressful times, we have a natural desire to want to feel better. And nothing gets those endorphins going like expensive purchases.
Resist the temptation to buy the large-screen TV, the latest iPhone, or newest video game console. You’ll be better served if you use that money to pay down debt or add it to your savings.
- Selling your investments.
The stock market is going crazy right now. Checking your investment portfolio several times a day during the pandemic is only going to increase your anxiety.
Check your portfolio no more than once a quarter and continue making contributions as usual. And DO NOT sell. The stock market will correct itself. Besides, it’s always good to have some solid investments that can act as an inflation hedge.
- Living off credit cards.
Relying on credit cards for every purchase is a bad idea in normal times but is definitely something you want to avoid during a pandemic.
You’re only racking up debt that’s going to make it harder to get back on your feet once everything returns to normal.
- Paying federal student loans.
If you’re still making federal student loan payments, then you can stop right now. Payments and interest on federally held student loans have been automatically suspended through December 31, 2020. You can put that money towards credit card debt, car loans, or add it to your savings.
Check out the Consumer Financial Protection Bureau for more details on the payment suspension and other loan repayment assistance programs you may qualify for.
- Taking out payday loans.
Payday loans give you access to quick cash, but at staggering interest rates. The vast majority of the time borrowers have to take out another loan to pay the first and so on.
The lenders want to hook you into this endless cycle. When it comes to payday, stay away.
- Not creating a budget.
You need a budget now more than ever to keep your finances in check. Having a budget will ensure your money isn’t being wasted and will give you a feeling of control during this time when so much can feel out of your control.
- Getting take-out meals every day.
Getting take-out meals every day is not only expensive, but restaurant meals are often high in calories, fat, and sodium. It’s more cost-effective and healthier to cook meals at home.
Treat yourself to take out once or twice a week (support local businesses!) but make home-cooking the norm rather than the exception.
- Not talking to a financial professional.
Figuring out finances is even more challenging during this pandemic. It’s a smart idea to consult a financial professional to set up a plan.
A financial professional is not emotionally invested in the decisions. He or she just wants to make sure you reach your financial goals, whether we’re living through a pandemic or not.
- Worrying about what you can’t control.
Finally, try to not worry about what you can’t control as this pandemic plays out. It’s easier said than done for sure, but it’s good advice.
Remember, the stock market will do what it does, and the government may or may not take certain actions. You can’t control these big picture items, but you can take small steps to protect your finances, your family, and your health.
One day we’ll finally be living in a post-pandemic world, but we just don’t know when. For now, wash your hands often, wear a mask, and avoid these financial mistakes during the pandemic.
