One question we are getting a lot is for our advice on how to manage finances during COVID? What special steps should people be taking? Whether you are practicing social distancing, quarantined and working from home, or on the front lines of healthcare – over the course of the past week we have seen massive changes to everyday life in America. Do this indicate we should make changes in how we manage our money as well?
While no one is certain how long this healthcare crisis will last, one thing is becoming more clear each day – we are on the cusp of a financial recession. With that in mind, we want to encourage you to do your best to make yourself what we call “recession-proof”.
Here are 6 things you can do to prepare financially and get you through this economic recession in good shape:
Keep spending to a minimum
Similar to taking precautions to keep you in good health, you should be taking precautions for your financial health. Create and stick to a needs based budget, avoid any unnecessary spending and save what you can. Even an extra $50 could make a big difference in the next few months.
Keep as much cash on hand as possible
With a possible recession on the horizon, it is a good idea to build as much of a cash reserve as you can. You may end up relying on this money later just to cover basic expenses. Even if you already have an Emergency Fund, we encourage you to continue adding to it. A fully funded emergency fund that is equal to 3-6 months of necessary living expenses should be your goal. However, the more you have saved, the more comfortable you will get through uncertain economic times. (Note: “cash” is simply referring to funds available in your checking account.)
Avoid using credit cards
It is always a good rule of thumb to avoid making a bad situation worse. In this case, avoiding getting through the recession and building a mountain of debt. If at all possible, switch to a primarily cash (bank card) basis and avoid using credit cards entirely. This will also help you stick to your budget and ensure you only spend what you can actually afford.
Hit pause on aggressively paying off debt.
Getting out of debt is incredibly important in your long term financial plan, but during hard times you need to focus on the necessities of everyday life. Hit pause on your debt free plan and focus on your shorter term needs. This is especially important if you are unsure how your income will be impacted in the next few months.
Take advantage of zero interest on federal student loans
According to reports, federal student loan payments will not be decreased or deferred, but interest will temporarily stop accruing. While this does not actually help your monthly budget, it is a great time to keep up with payments to take advantage of the entire payment going toward your principal balance. Continue making timely payments, stay in good standing and take advantage of lowering your overall burden.
Do not panic sell your investments
If you invest in the stock market you already know that it has been a rocky few months. The past week in particular was literally one for the record books. While it is important to acknowledge your feelings of shock or concern – it is even more important to do absolutely nothing about it. This is the nature of the beast that is the stock market and it will recover over time. Avoid selling at a loss. Instead consider calling your financial advisor to ensure your portfolio is in line with your risk tolerance and goals.