How to prepare if coronavirus might cut your income

With government officials advising people to avoid large gatherings to reduce the spread of the coronavirus, a growing number of companies and organizations are canceling events or cutting back on services.

While that may help curb the spread of the disease, it’s bad news for freelancers, independent contractors and gig workers who are losing income because of it. People who are seeing their work interrupted or canceled – like drivers, delivery workers, planners, vendors and designers – are expecting to see their income suffer as work dries up.

How do you prepare for a sudden drop in income?

Dial up alternate sources of income

In one week, Jude Maines, an on-site meeting coordinator based in Atlanta, has lost six jobs and more than $33,000 in payand he’s fearful more cancellations are on the way.

One big event he still has booked,a five-week jobin Tokyo during the Olympics this summer, would make up about 20% of his income for the year.

“I’m afraid they will cancel,” he said. “Those of us that are working in this space, we’re nervous about how we’re going to pay our bills.”

Still, Maines says, he is one of the lucky ones. He’s married, his wife works and he also has a property that he can rent out for extra income if he needs to. Some of his colleagues, he says, are looking at working for ride share companies, picking up jobs at coffee shops or leaving the industry for more stable employment.

If you expect your income will be cut, your goal should be to boost your cash flow and trim expenses, said Brian Berkenhoff, a chartered financial analyst with Birch Investment Management in South Dakota.

“Now would be a great time to consider refinancing your mortgage, if you own a home” Berkenhoff said. “With interest rates at historic lows, you could choose two routes, either take cash out of your house for an emergency fund or seek to minimize your monthly payments.”

If your income has already dropped, you may need to supplement your income with other kinds of work, but take some time to work on your business, said Ben Henry-Moreland, a certified financial planner with Freelance Financial Planning in Omaha.

“This is the time to track down unpaid invoices, build relationships with future business contacts, improve processes,” Henry-Moreland said. “Business cycles go up and down and successful small businesses are prepared for these cycles. Keeping a business owner mentality helps freelancers plan for up and down times and know how to keep themselves useful during both.”

As the situation evolves, you may find you have a way to offer your services in a coronavirus-conscious way, said Tara Unverzagt, certified financial planner with South Bay Financial Partners in Torrance, California. You may be the one who can help employees work remotely or be the wedding planner that can help couples hold their big day in a safe way.

Keep up with your bills by adjusting them

Even if your income drops, the bills do not stop.

If there were ever a time to cut back on the lattes and suspend subscriptions, it’s now.

Meeting your payment obligations should be your top priority. And don’t forget about the money you’re setting aside for taxes.

“Freelancers should be paying estimated taxes as they go, based on the income they earn,” said Unverzagt. “Review how much you’re paying in estimated taxes and reduce it to reflect the lower income.”

But even in tough times, it is never good to skip estimated tax payments, said Henry-Moreland. “Tax debt can be a slippery slope, it can be hard to recover from.”

Also, he said, if you’re on an Affordable Care Act exchange health insurance plan and benefit from the premium tax credit, you can report a change in circumstances to increase the credit and effectively reduce your health care costs.

For those with student loans, entering into an agreement with your provider may help with payments.

“Reach out to your loan servicer,” said Berkenhoff. “You may be able to defer your loan payments or get placed on an income-driven repayment plan.”

This is what the emergency fund is for

Independent workers like freelancers, contractors and gig workers should always be saving up for a rainy day. But in practice, that can be much harder for this group than it is for those with steady salaries.

For those without any emergency cash, the next best thing would be to subsidize expenses using an inexpensive line of credit, according to William Hatton, a certified financial planner at Billfold Budget Counseling in Los Angeles

“This could be from home equity, from the bank, or even by taking advantage of low- or zero-APR on a new credit card,” said Hatton. “With the [Federal Reserve] lowering interest rates, this is even more attractive of an option if you need emergency funds to make ends meet.”

Now is the time to secure lines of credit, whether that is applying for a new credit card or getting a limit increase, or a traditional line of credit.

And make no mistake: this is the emergency.

In the life cycle of an independent worker there are natural fluctuations in your income, treat this as a more significant downturn, said Henry-Moreland. You do not want to draw down all your cash before switching to your emergency fund or credit. Rather take a little from the fund to cover what you are short.

“Don’t be afraid to dip into your emergency fund that is set up for just such emergencies,” said Unverzagt. “But you’ll need to cut back on non-essentials to make sure that emergency funds will last until the situation turns around, which could be a long time.”