How to Prepare Your Finances For a Coronavirus-related Recession

• Author: Michael Bordonada
• Posted: 2024-08-11

As the novel coronavirus or COVID-19 rapidly spreads around the world, the dangers of a worldwide recession are increasing. Stock markets around the world, including in the U.S., are plummeting as concerns about a potential pandemic grow. There are a few steps that you can take now to protect your finances from a potential recession.

Add to Your Emergency Fund

Even if a recession doesn't end up happening, you should have an emergency fund. If the coronavirus's spread does cause a recession, having an emergency fund can protect you and your family if a job loss occurs. You should try to save a minimum of three to six months' worth of your expenses in a liquid savings account so that you can access the money if it is needed. Having money saved for emergencies can help to keep you afloat while you search for a new job. You don't want to be caught without money saved to pay for things like your housing, food, and other necessities during a recession.

Trim Your Overhead

Take a critical look at what you are spending money on, and cut unnecessary expenses. For example, look at your online banking to check for automatic payments that come out for subscriptions you have ordered but do not need. Call those companies and cancel the subscriptions. If your cell phone plan is high, think about changing to a low-cost carrier. You might want to compare your cable company to the cost of a streaming service for your television programming. Make certain to turn the lights off in rooms as you leave them, and turn the thermostat down during colder weather and up during hotter weather to save on your utility costs. Finally, try to cut back on your food costs by sticking to a list based on planned menus instead of eating out.

Add to Your Income

Increasing your income to prepare for a possible COVID-19 recession is a good way to insulate yourself. You can volunteer to work overtime hours at your company and work hard to gain a promotion. There are also many side hustles available in the gig economy. Consider driving for a food delivery service like Door Dash or a ride share service. If you enjoy writing, you might also consider applying to various content platforms online to add extra money to your monthly income.

Continue to Invest

When a recession hits, many people react emotionally and start selling off their stocks or making changes to their 401(k) accounts. Do not panic if a recession hits. Continue investing and avoid touching your 401(k). You can set up an automatic investment schedule from your paycheck or your bank account to your investment or retirement account. When stock prices fall, it is a good time to buy. This can place you in a better financial position after the recession ends. Remember that recessions are not permanent. Historically, recessions that occur because of a pandemic typically last for much shorter periods than other types of recessions.

Pay Your Debts Down

Having high-interest debt can significantly cut into your cash flow. To free up some money, you should concentrate on paying your high-interest debt to manageable levels. If you can pay your high-interest debts off, do so. If you do not pay off your debt and only make the minimum monthly payments, your debts could quickly reach unmanageable levels if you are laid off from your job during a recession. Paying off your high-interest debts can help you to keep your head above water until things get better.

Take Steps to Improve Your Credit

While your credit score might be the last thing on your mind when you are worried about a potential recession, you should do what you can to boost it now. During recessions, lenders typically will only approve people for loans and mortgages who have the best credit scores. Since housing prices often fall during recessions, it might be a great time to buy a house after a recession hits. By boosting your score, you can place yourself in a better position for securing a mortgage or car loan during a recession.

Recessions can be scary, and the U.S. may enter a recession because of the spread of the coronavirus. By taking steps to prepare your finances, you might protect yourself and your family from the worst potential impacts.