As jobless claims mount, a pandemic keeps Americans at home, and stocks gyrate, Americans are looking for creative ways to stretch their existing paychecks to weather the storm. For those who haven’t lost their jobs, fears of an imminent layoff may occupy their minds.
Cashay spoke to Tanja Hester, a pioneer of the financial independence/retire early movement — also dubbed FIRE — who retired in her late 30s. She’s also the author of “Work Optional: Retire Early the Non-Penny Pinching-Way” and the blog “Our Next Life.” Hester offers her best money advice to those who may be struggling during these difficult times.
Cashay: How can someone weather this financial storm if they feel a layoff is imminent?
Tanja Hester: I think if you still have a paycheck, but believe you might lose it, hold on to as much cash you can. This would mean cancelling your 401(k) contributions because this is a short-term, not a long-term, strategy. I would recommend having a cash cushion for six to 12 months of expenses. Using this moment to beef up your emergency fund is one of the best things you can do.
I would also look into cutting your expenses. It’s tough because people want to get takeout food to support restaurants, but if you lose your job, you’ll need that cash.
Hopefully, you’ll get some type of jobless benefit. It’s really hard to get into the system because they’re overloaded. It might take even weeks before you can take that money.
Cashay: But what If someone has gotten laid off and doesn't have an adequate emergency fund, what can they do?
Tanja Hester: People will always come up with creative ways. It’s a lot harder right now compared to options that would be viable months ago. You can’t get a job as a bartender and you can’t work as a server.
I did hot yoga and spinning, but the gyms are closed now. You are now limited to the things you can do online as the crisis deepens and this unfolds. We are going to see people also spend less money online.
I think you should get creative about ways to save money even if you don’t qualify for mortgage relief. Whether it’s working harder to secure a rent adjustment, see what your respective mortgage servicer is offering and calling multiple times to negotiate other debt.
Another way to reduce expenses is, if you have a phone or internet, you can switch to something cheaper. Your time overall might be better used over reducing your expenses, which can have a lasting impact.
Cashay: How should they approach their investments?
Tanja Hester: I would certainly advise folks to not take hardship withdrawals until totally necessary. You should look at all your other options first, such as cash savings. Also, see if you can negotiate with the landlord for lower rent. Also, consider shrinking your life costs. Obviously if you’re going to go into debt or starve, of course, then a hardship withdrawal is a good use of your retirement. But it can set your future back.
Cashay: Is there any other advice you want to impart regarding this current situation?
Tanja Hester: I think you have to be willing to be open to different job opportunities. Take a job right now even if it isn’t your dream job during this financial crisis. You shouldn’t consider [any] job as a failure; you can always pivot later.
Also we were talking about retirement earlier: If you do have a cash cushion (six months up to a year) and you feel your job is solid, you should keep investing. You should buy consistently especially when stocks are down. This is not a time for everyone to sit here and hoard cash.
If you're still doing okay, stay the course with your long-term planning.
Read more information and tips in our Retirement Planning section