We all need to know how to prepare for a recession due to the coronavirus pandemic. It has affected billions of people in every country. Unfortunately, it brought more crises that we’ll be dealing with for years to come. A tremendous economic downturn is coming, so ready your finances and buckle up!
We’ll explain how the coronavirus pandemic will affect personal finance around the world. Then, we will go through the steps to secure your money during the recession. Many of these are old-timey practical advice that still applies in the modem world. Even now, financial literacy could help us in these dark times.
We’ve had economic crises like these before, yet many folks survived those times. Now, we could learn from their experiences and also prepare for a recession. We hope our guide could help you and your family get through the challenges ahead. Understand the tips below so that you can apply them as soon as possible.
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COVID-19 pandemic pushed us into recession
People have been checking how to prepare for a recession lately. While it’s a bit troubling, it is reasonable. Lots of them lost their livelihoods due to the lockdowns.
We were supposed to stay at home to prevent catching COVID-19. Unfortunately, this caused numerous businesses to shut down. Many people lost their jobs, so they had to rely on savings.
Eventually, lots of them ran out of money for rent, utilities, and other needs. With no means to earn a living, they’re running out of options.
People around the globe are experiencing a similar situation. Specifically, the United States economy took a significant hit. Here’s how the US did 6 months into the pandemic:
- Small business revenue dropped by 20% since January.
- More businesses filed for Chapter 11.
- There were fewer new businesses that opened.
- More people wanted to work but couldn’t due to various reasons.
- In July, more than 1 in 5 households were behind on rent
- The rate of food insecurity doubled.
Experts compared our current situation with the Great Depression. They found that it has a sharper decline than the past downturn. They’re unsure how US recovery will turn out.
Regardless of successful vaccinations, we should still prepare for a recession. It seems the economy will go through a long COVID. It will have problems even after the virus has left.
How to recession-proof your finances
If people during the Great Depression survived, we could also handle the coming crisis. With proper money management, they could do more with less money.
Some have built enough savings to serve as a financial cushion. Others took it a step further and paid off all their debts.
If you still have a job, make sure you have other means of earning money. If you have spare time, you might want to take a side hustle too.
You may pull out some of your investments to help you prepare for a recession. We’re not sure when the economy will bounce back. Your stocks might be better as cash in hand.
Practice good money habits
Personal finance was necessary back then, and we still need it now. Its lessons helped many people survive the Great Depression. Now, it could still help us prepare for a recession.
We could adequately handle money during the coronavirus pandemic by planning a budget. Write down your daily expenses and current income, if any.
Put them in three categories: needs, wants, and debts. Allocate half of your income for necessities. Use 20% for unpaid balances and savings. The remaining 30% is for stuff you like.
This is called the 50-30-20 method. These are challenging times, so you might want to use the 30% for savings instead. Check if this technique fits your current situation.
If not, you could find other budgeting methods on the internet. You’ll find different ways to prepare for a recession as well.
Prepare an emergency fund
If you have funds in your savings account, that’s one step in preparing for a recession. If not, you may want to start building an emergency fund.
Spend less for more savings. Stop buying stuff you don’t need. See if there are cheaper alternatives to things you usually buy. The budgeting method we’ve discussed could help you.
Place a limit on your credit card. Ask your bank how to activate this feature. It usually has a smartphone app that lets you track your account conveniently.
If you lost your job or closed your business, you could try selling unused knick-knacks. Check your attic for stuff you could sell on sites like eBay.
Pay off debts
Getting rid of debt means getting more funds for the more important stuff. If you can, complete debt payments as soon as possible. These help you earn extra cash to prepare for a recession.
Try DIY debt-busting strategies like the snowball method and the avalanche method. They provide a structure that lets you deal with unpaid balances easier.
A debt settlement company could also help you manage unpaid balances. They could speak with your lenders to lower your debts. Still, you should be careful with this option.
Credit counseling could also help you prepare for a recession. A counselor could provide a debt management plan and teach more money management skills.
Have a Plan B in case you lose your job
Nobody wants to think of job loss, especially now. Still, this economic crisis hit people and companies you’d least expect. That’s why it’s best to have a backup plan.
If you have time, learn new skills on the internet. You could enroll in online courses that cost a fraction of the typical college tuition. These allow you to qualify for new jobs just in case.
What’s more, you could get a side gig after office hours. Many companies now provide remote work options in response to the pandemic. Find one, so you can earn extra while at home.
Check if you need to pull your investments
Timing the market might not be wise, especially now. It might be a good idea to pull your investments early. You may need to be more bearish to prepare for this recession.
Experts find it hard to see where the markets are headed. We’re not sure how soon we can get back to normal. Instead of waiting for long-term gains, you may want to keep your finances safe.
Still, we should prepare for a recession. We’re about to face challenges that may last for several years. Adapt with proper money management skills. If you can, find a source of extra income.
Check the internet for more personal finance tips during the coronavirus pandemic. You’ll find more information to help you survive and even thrive despite these times.