With the number of COVID-19 cases trending upward, worries are returning that we'll still be wrestling with the coronavirus pandemic for quite some time to come. Unfortunately, that translates to not only continued health worries, but also to extended concerns about how secure our economic futures are as well.
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With first-time unemployment claims still topping 1 million per week and the unemployment rate above 13%, there's a real risk of needing to tap your savings to cover your costs because of unemployment. If you need to turn your savings into cash because of the coronavirus pandemic, we'll look at 13 ways to do that. They're generally in order of least to most ugly, though deeper in the list, you can make a case for considering a different order if your circumstances warrant.
Note that if you're already of a traditional retirement age -- which can be as early as the year you reach 55 for some employer-sponsored plans -- the rules change. In those cases, it could potentially make more sense to start tapping your retirement accounts for money you may need in the short term, even if you plan to return to work once you're able to.
No. 1: Start with your emergency fund
Typical financial planning guidance suggests that you should sock away three to six months of your costs as cash in an emergency fund, just in case something like this happens. If you've followed that guidance, you've got the money to get yourself through a short-term crisis like temporary unemployment. If you find yourself in that situation, go ahead and tap your emergency fund first. This is precisely why you built that fund in the first place.
No. 2: Reach into savings you have dedicated for other future purchases
If you're saving up cash for a down payment for a house, your next car, your next vacation, or some other purchase you're planning to make in the future, that cash is also fair game if you need it. Tapping this money does delay your ability to make that purchase, but you've got bigger worries on your hands at the moment. To the extent those other purchases can be delayed -- and often they can -- that money can help you meet your more urgent needs today.
No. 3: Sell stuff you no longer need
If you look around your home, you're likely to find a collection of things you no longer use or need. If you need to raise cash, remember the old saying that "one person's trash is another person's treasure." You can sell that stuff online, in a yard sale, or potentially a consignment shop. In so doing, you can raise some much needed cash and rid your life of clutter in a single action.
No. 4: Tap your interest and dividend payments
Do you have stocks, bonds, CDs, or savings accounts that pay interest or dividends? Are those payments set up to automatically be reinvested? If you turn off reinvestment and have those payments pile up as cash, that cash is available to you to spend if you need it. Yes, taking those payments as cash will result in you losing the compounding you would otherwise get on the money, but if the alternative is losing your home, tapping that cash is a much better option.
No. 5: Use the cash from your maturing or called investments
CDs, most bonds, and some preferred stocks have maturity dates, by which the issuers convert the investments into cash. In addition, bonds and preferred stocks often are callable, which means the issuer can covert the investments into cash before that maturity date if circumstances warrant. In ordinary circumstances, it might be tempting to reinvest the money from those maturing or called investments. When money is tight, that cash can instead be spent to cover more immediate needs.
No. 6: Sell fixed-income, low-return assets
If your asset allocation plan calls for you to own bonds or other fixed-income investments, those assets probably have held up fairly well, as interest rates have dropped since the beginning of the year. That means two things. First, you're probably not giving up much in future returns if you sell those assets now instead of waiting for maturity. Second, you may actually have a gain on your sale because of the way bonds react to interest rate changes. That makes them decent candidates to consider selling if you need to raise cash.