The economic uncertainty due to COVID-19 has strained businesses and households alike. Two weeks ago I wrote about the CARES Act and the variety of funding vehicles being rolled out to businesses and families, such as rebate checks (starting soon), penalty-free retirement distributions, and loan and loan forgiveness programs for small businesses and sole proprietors. These efforts are sure to help most Americans.

Still, times remain uncertain. Those filing for unemployment benefits in the U.S. topped 16 million last week over the course of just a three week period. Hopefully those benefits come sooner than later, but on a broader scale this has me thinking about how important it is to have access to cash in times like these.

I’d like to take some time today to consider sources of cash to help you and your family whether the financial storm we’re in, and future storms yet to come.

Rebate Checks Provide a Significant One-Time Cash Boost

A considerable portion of the $2 trillion CARES Act will go to one-time cash payments to about 90% of Americans. (To learn more about them, click here to see last week’s post.) Checks in the mail are not a new form of government financial intervention, but it’s important to emphasize that these funds should not be viewed as “stimulus” money. Money isn’t being put into the pockets of most Americans over the next 4-5 months to boost the economy, but rather to help us survive.

In this light, most of us should look at our rebate check as emergency cash for essential expenses. With most Americans unable to access $1,000 cash in an emergency, we would be wise to direct our rebate checks to emergency savings if you don’t need the funds immediately. Most of us should strive to have a minimum 3-months of cash savings.

Of course, the best time to bolster one’s emergency savings was yesterday, but the next best time is today.

Are You Getting a Tax Refund? Claim it Sooner Than Later

Thanks to the IRS, we’re still in the midst of tax season until July, since they decided to extend the filing deadline until July 15th. This is helpful in that it removes one more thing from our to-do list for a while, and it delays any required IRS payment if you underpaid your taxes last year; however, if you’re planning to get a rebate, get your taxes filed now.

This is the situation my wife and I recently found ourselves in. Due to our child tax credits and overpaying some employment taxes, we are in store for a rebate. Not only would we typically want that money as soon as possible, but having access to it sooner is particularly important as we consider bolstering our cash position over the next 6-12 months. Waiting to file by July sets us behind.

Consider Filing for Unemployment Benefits

If you’re finding yourself unemployed currently, consider filing for unemployment benefits through your state insurance program, even if you typically wouldn’t be eligible. The CARES Act provides substantial funding to not only bolster unemployment benefits by an additional $600 per week, but it opens up these benefits to self-employed persons and those whose unemployment situation is directly impacted by COVID-19 (that’s many if not most of us). Since the average U.S. unemployment benefit is around $400 per week and the CARES Act pitches in an additional $600 per week until July 31, 2020, this is without a doubt an even bigger benefit than the rebate checks, which arguably have received more of the attention. In some cases, Americans could end up earning more during unemployment than when they were employed!

Cut Non-Essential Expenses

If you’re in a higher income household, these sources of cash may not make a huge impact on your financial situation. Was your income too high in 2018 or 2019? Your rebate check will be phased out or possibly zero. Are you used to spending into the five digits on monthly expenses? An unemployment check of $3,000 to $4,000 for a few months won’t help much.

If your income isn’t what it used to be, then it’s time to look at the other side of the equation: expenses, particularly the non-essentials. This doesn’t require a lot of explanation; most of us know what costs we can cut during a downturn. But here are a few examples:

Restaurants and entertainment costs should be the first to go. It’s cheaper to eat and entertain yourself at home. (Note: I know we want to support local eating establishments during a particularly hard time for them, but I hope you’re also being mindful of your own family’s financial situation, not solely someone else’s).
Shop less. You probably don’t need a new pair of jeans for you or your kids, or they at least don’t need to be top-of-the-line. Most household shopping can be drastically reduced.
Adjust your heater and AC. Dialing the heater down just a few degrees at night (or the AC up during the day) can make a noticeable difference on your pocketbook.

Borrow Carefully

Only after you’ve exhausted all these efforts should you consider borrowing money, but not all borrowing is created equal. I’m reluctant to ever recommend going into credit card debt, since the rates are so exorbitant and access so easy. Instead, consider borrowing from sources with lower interest rates or more favorable terms. For example, a Home Equity Line of Credit (HELOC) could be used to provide cash flow at rates far lower than credit cards. Borrowed funds from your 401(k) are taken out of the stock and bond market which is never a good thing, but you’re at least forced to pay them back over time (with interest). Funds from IRAs can be withdrawn without penalty for COVID-19-related economic hardship, but the IRS allows these to be paid back if you choose...and no interest is charged. Borrowing when the market is down is never ideal, but let’s at least acknowledge that certain types of borrowing is better than others.

I hope this post has been helpful. I encourage you to use this time to take stock of how much cash you’re regularly spending each month versus how much you actually need (I promise you, they are different numbers). Identify ways to put these funding sources to work, and think about what expenses you can cut when necessary. Then (and only then) consider the most sound approach to borrowing that will have as short an impact as possible.