I see a lot of personal finance bloggers very publicly celebrating their 6-month (or 1 year) emergency funds these days. Echoes of “I told you so” reverberate across the Twitterverse, as these savers scold those of us who have been holding low cash reserves and high debt.
And to be fair, many of us, including myself, have been caught with our pants down, facing possible job losses, reduced side hustle income, and plunging investment returns at a time when we need cash the most, to prepare for an uncertain future. I myself had taken advantage of low interest rates and high returns in the recent past to accumulate quite a bit of debt and very little in cash savings.
However: although the events of the last month may have pointed more than ever to the value of an emergency fund, these supersavers will be bitterly disappointed to discover that with the current crisis comes an historical opportunity to abandon old debt, take on new and improved debt, and stockpile cash.
It starts with the biggest government benefit package ever offered (perhaps in the history of the U.S.A.), the CARES act. This package was designed, albeit quickly and haphazardly, to keep the poor solvent, shield the middle class from losses, and empower the wealthy to start pumping their millions back into the economy.
And, well beyond CARES, there are many other ways to defer spending and save cash, all without making any sacrifices in lifestyle or daily spending (although, with everything closed, that’s kind of happening involuntarily for most of us anyway)
That’s why I’ve decided to compile an initial list of available benefits, and other ways you can stay solvent.
Let’s start with CARES:
As many of you know, this act passed last week and has been designed to help those impacted financially by COVID, which includes a vast swath of people and companies. I’ve listed some of the benefits that can affect regular people like you and I, with a special eye towards FIRE types that depend on side hustles, real estate and other unconventional sources of income:
- Cash Payments: this is the most obvious benefit, with $1200 going to every American making less than $75k and $500 to parents for each child they have. The $1200 payment is phased out between $75k and $99k per individual – however, it’s important to note that the income thresholds are based on adjusted gross income. This is where people with high deductions like real estate investors benefit. So, if your gross income in 2019 was, for example, $250k, but deductions dropped it down to $70k, you will still get the full $1200.
- Mortgage Relief: if your mortgage is backed by Fannie Mae, Freddie Mac, or similar government insurer, you can qualify for up to eight months of mortgage relief. You can see if you are backed by Freddie here, and by Fannie here. The process is amazingly easy, I just went to my bank’s website, answered a few questions, and was instantly approved. No documentation of hardship, etc. is needed.
- SBA Loans: Uncle Sam allocated $350 billion for loans to small businesses, i.e., those with 500 or fewer employees. However, I took a look at the applications page and there is a form for sole proprietorships. Therefore, I plan to apply for assistance based on the loss of rental income from three of my vacation rentals that were closed due to a county-wide shutdown. This falls under the category “you don’t ask, you don’t get”. I will keep you all posted.
- Student Loan Relief: all federally owned student loans will be deferred (principle and interest) through September 30, providing an additional opportunity to stockpile cash if you still have any coming in. If you want to take advantage of it, please take a look at this helpful summary from Fortune.
- Accelerated Deductions: now, this one is a little more complicated but can potentially result in tens of thousands in tax refunds, so I thought it would be worth mentioning. Rental property owners: have you spent money on improvements like furniture, landscaping, or appliances? You can now deduct the full cost of these improvements in the year you make them. You may even be able to go back and restate returns from 2017-2019 to capture these benefits. I have launched several vacation rentals in the last few years, and have probably spent nearly six figures on improvements like this – so I fully intend to explore this seemingly obscure benefit. Please take a look here and here for more info, but for heaven’s sake, talk to your accountant before doing anything.
Who CARES? Non- CARES Opportunities
There are many more opportunities, well outside of government programs, to defer debt and other obligations – if you need the cash to live on, or just want an extra cushion these days. Here are some things I’m looking at, and you should too:
- Non-qualifying mortgage relief: I have two mortgages that are not government backed and therefore don’t automatically qualify for deferral. No matter: I know that these lenders are already anticipating inquiries and have asked both for deferrals. It’s a long shot but could save me tens of thousands over the next 6-8 months, so it’s more than worth asking about.
- Rent Deferrals: the owner of the company I work for is paying $15k a month in rent. A four-month deferral would give him a $60k cushion that he can use to pay his employees if his clients are late in their payments while they wait for their rescue packages. Do you think I’m going to ask for a deferral?
- Property Tax Deferrals: I live in California and owe $11,000 in property taxes in two weeks. No amnesty on late fees has been announced: but who knows how dire things will be by April 10 (the deadline)? Until then, I am standing by in case any relief programs are announced.
- Credit card “click and defer”: Bank of America has a “Defer” button prominently displayed when you check your credit card balances. I clicked it once and BAM!, my application was submitted. Who knows how many other banks have this option? Admittedly, I don’t know the terms yet but it sure is easy to apply.
To sum it up, despite what Dave Ramsey might say, it’s actually a pretty good time to be in debt. Mortgages, student loans, credit card payments, even rent commitments are all up for grabs. So much so that when this is over, maintaining an emergency fund and low debt levels may look hopelessly dated.
In effect, we seem to have entered a period where debtors as a class are “too big to fail”, and when times are tough, Uncle Sam is prepared to rush in with a bail-out. Let’s not worry about the long-term consequences of this on consumer behavior (that’s for another post) – times are scary, and you’d be crazy not to take advantage of these benefits to the fullest extent possible.
The above is meant to just provide an initial summary of possible COVID-related benefits. Please talk to your accountant and lenders to see if they apply to you.
Are you taking advantage of any of these benefits? What have you done? How hard was it? Tell us in the comments below!