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Headlines about record unemployment numbers, stock market volatility and the recession aren’t exactly reassuring. So it’s easy to understand why many of us are worried about the possibility of things getting worse before they get better.
With all this national doom and gloom, it may be tempting to just throw our hands up in frustration. But remember, hard times don’t last forever. Historically speaking, the economy and markets have recovered from previous recessions.
While we can’t control the timing and speed of a potential recovery, we can be proactive when it comes to our financial well-being.
Here are some steps that may help you and your finances during a recession.
Having a cash reserve on hand to respond to emergency situations is especially vital during a recession. If you have a job now, but don’t have an emergency fund, consider putting some money away each month in a separate savings. The general guideline is to have enough to cover at least three to six months of living expenses.
Job security in a recession is never a sure thing. This isn’t meant to scare you, but to underscore the importance of being mentally and financially prepared for what could be the worst-case scenario.
You don’t want to find yourself in a situation (e.g., losing a job) where you have to scramble or take out a last-minute loan to cover essential expenses. An emergency fund can help you deal with potential bumps in the road without knocking you completely off course when it comes to your financial goals.
Bear in mind that it’s important to keep your emergency fund in a safe (read: FDIC-insured), accessible account such as a traditional or high-yield savings account, so that you can withdraw the money when you need it.
Recession or not – it’s good to get into the habit of revisiting your budget to see how you’re spending your money every month.
Knowing which expenses are essential and which ones could be paused or eliminated can help you identify areas for saving when it’s time to tighten your belt. With many of us working from and staying at home these days, you’ve probably noticed how much you could cut back in certain categories (e.g., restaurants, entertainment, etc.).
Having and sticking to a budget can also help you stay on top of paying down any existing debt. Keep in mind that the quicker you can pay off debt, the sooner you can free up more of your budget for something else.
In a recession, you want to be especially mindful about your spending and saving because this is typically a time when we see rising unemployment.
Not only could a budget help you save money, but it could also help you avoid the possibility of having to borrow money at the last minute to pay for essentials should you experience an unexpected job loss during a recession.
A recession already comes with plenty of stress, and the last thing you may want is for your debt to grow while you’re trying to cope with other financial pressures.
If you do end up having to take out a personal loan to cover your expenses, you’d want to get the best possible terms. To do that, you would need to maintain a good credit score. This means paying your bills on time and keeping your credit utilization low, among other things.
While coronavirus pandemic has left many struggling to meet their financial obligations, banks, mortgage lenders and other service providers are offering assistance for those who may not be able to make their monthly payments.
Let your bank or financial institution know about any hardships you may be facing and see what flexibility they can offer when it comes to paying your bills. Missed or late payments get reported to credit bureaus and can hurt your credit score. So if there’s a way to work out a more flexible payment arrangement to avoid getting dinged, you’d want to do that as soon as possible.
It’s tough watching the balance of your retirement plan drop whenever the markets get temperamental. It’s even tougher to resist the urge to do something to stop the bleeding. You might be tempted to stop contributing altogether or completely shift your asset allocations.
The key to avoiding making investment decisions based on emotions is to take a deep breath and remember to focus on the long term.
However, keeping calm doesn’t necessarily mean you should do nothing in the face market turmoil. What you could consider doing is review your retirement plan(s) and make sure that it’s appropriately diversified and not exposed to more risk than you’re comfortable with. If you are comfortable with your retirement plan strategy, you may not have to make any changes.
We understand that staying level-headed during a global crisis may be easier said than done. This is why you may want to reach out to your financial advisor and discuss any concerns. They may review your investments with you and help identify the pros and cons of any changes you may be considering.
We’re not talking about going out and finding a second full-time job here (you work hard enough as is).
This tip is for those who have ever thought about taking on a side project for a little extra income. Perhaps, you’ve been wondering if you could make money off of your hobbies – is there a demand for cute cat crochets? Probably.
Exploring these options can be helpful in two ways. First, it’s a chance for you to develop a new skill set. Second, if successful, your side project could provide at least some income if you were to suffer a pay cut or lose your job in a recession.
If you don’t want to take on any extra work right now, you could also simply look at what networking opportunities are out there. Having some solid contacts can come in handy if you ever do need to look for a new job.
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