The coronavirus outbreak that’s affecting Americans and people all over the world is a health crisis, but it’s also taking a toll on the economy.
There are health, economic and political aspects to this ongoing situation. I’m writing this post to talk about your money.
How to Prepare for a Recession
Let’s face it: Every time we turn on the news, there’s talk about a possible recession. The stock market is volatile. And industries are already being impacted as Americans self-isolate.
I’m not here to make predictions about if and when a recession will happen, but I can share with you what I’m doing to prepare for an economic downturn. This is all practical stuff. If it makes sense to you, use these tips to recession-proof your life.
Let’s get started…
1. Create a Bare-Bones Budget
If you’ve followed my budgeting method, you’re already tracking your expenses every month with Google Sheets. Now, I’m suggesting that you create a bare-bones budget. This takes just a few minutes. I have a step-by-step guide here, but it all comes down to figuring out the minimum you’ll need to survive if your hours are cut back or you lose your job. List your “needs” like mortgage/rent, utilities, food, insurance, etc. Add up the numbers to determine your monthly budget during a financial emergency. I’m not using my bare-bones budget at the moment because I still have my full-time job, but creating one ahead of time will give you peace of mind and help you plan.
2. Reduce Expenses
Next, open your regular monthly budget and take a look at your variable expenses. As I mentioned, I’m not cutting everything out of my budget yet. However, I do think this is a time to reduce spending in certain categories to free up more money for savings or outstanding debt if you have it. Right now, I’m cutting back on group fitness classes, restaurants and entertainment spending because I’m not going out as much. Social distancing will result in lower spending. Try this: Pick three expenses that you can trim right now. Remember, this is a temporary situation. You don’t have to give up all of these things forever. Just do what makes sense at this moment.
Please Note: I support small businesses! I’m avoiding crowded restaurants and bars temporarily to protect my health and the health of my loved ones. I know that coronavirus is hurting servers, cooks and many others. As a small business owner myself, my income is also down. I’m just doing what I think is best for my health and finances until this situation passes.
3. Add to the Emergency Fund
If you already have an emergency fund that will last six months, way to go! You’ll likely be sleeping a lot better during this economic downturn. For everyone else, take the money that you saved by reducing expenses and put it in a savings account, preferably one that earns decent interest. If you haven’t set a goal for funding your emergency fund, go back to the first step of creating a bare-bones budget and multiple that monthly spend number by six.
4. Make a Credit Card Plan
If you pay off your credit card balances every month, you may not need to make any changes during this time. I’m continuing to use my favorite rewards credit cards to earn cash back, but I’ve also identified a credit card in my wallet with a low interest rate just in case I have to make a charge that I can’t pay off in full. My credit card issuer, Citi, sent an email with an offer for 3.99% on purchases until October. Keep an eye out for similar offers in your inbox. I don’t plan to carry a balance, but I felt better after I designated an “in case of emergency” card with a low APR.
I know that many people reading this have credit card debt. My advice to you is to continue paying off your debt if your job is secure. If you are laid off and can’t meet your debt obligations, contact your credit card issuers and other creditors. They may have special programs in place to help you. Don’t give up!
5. Talk to an Investment Pro
Even with the ups and downs of the stock market lately, I’m not touching my investments. Since I’m 35, I feel like I’m better off staying the course. If you’re closer to retirement and are worried about how a recession may impact your plans, talk to your investment professional. Be honest with them about your risk tolerance and take a closer look at your asset allocation. I’m not an investment pro. Please contact yours for any guidance related to coronavirus and a possible recession.
6. Travel Plans on Hold
Travel restrictions have already been put in place, so some of you reading this may have had your travel plans canceled on you! Personally, I don’t feel comfortable getting on a plane or staying in a hotel right now. I traveled a lot in February before the coronavirus outbreak really started to dominate the news headlines. I’ve decided that I’m going to pause future travel plans until things settle down. In the meantime, there are plenty of things that I can do at home.
7. Stockpile Strategically
My grocery store’s shelves are pretty bare these days as people have started hoarding food and household supplies. That is NOT what I do or what I’m suggesting that you do. I haven’t had to make too many store runs because I always keep a 3-6 month supply of most personal care items. When I find a great deal, I buy it. Sometimes I’m able to combine the store sale with my favorite grocery rebate apps Ibotta and Fetch Rewards. For food items, I keep a smaller supply of dry goods but also look for the sales. If you stockpile strategically, you’ll never have to be that person with an overflowing cart right before a snowstorm, hurricane or public health outbreak. This really comes down to following the sales, knowing a good price and buying at the right time.
I’m not panicking about the coronavirus and the economy, but that’s because I took the time to plan. If you’re not careful, you could worry yourself to death! But once you have a plan in place, your stress level will go down. If negative thoughts enter your mind, just tell yourself to “Remember the plan!” Stay healthy and let me know if there’s anything I can do to help you during this time.
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