Professionally, I have been through three recessions, 2008 being the toughest. My paycheck dropped by 90%, my husband’s employer cut his pay, and we found out we were pregnant. It was personally, financially, and mentally a challenging season in our life.
Every news outlet at the time posted nothing but doom and gloom commentary like “this time was different,” “we will never recover,” and the markets will never rise to the impossible high of 14,000 points again.
This year alone, our country has survived a worldwide pandemic, civil unrests, challenging election seasons, and domestic attacks. We will persevere. The financial impact of Covid-19 is painful, but there are steps you can take to make it through this season.
Understandably, with recessions come the fear of a potential job loss or a drop in income. Here are seven tips to help you prepare for that possibility without losing sight of your long-term financial plan.
1. Create a crisis budget.
This is the minimum amount needed for you to survive. The priority is what I call the “Quad of Stability:” food, shelter, transportation, and basic medical coverage. A crisis budget helps you estimate how much money you need to meet your basic needs, but also gives you an idea of how much you may need to cut back to make it through an income drop.
2. Start cutting back.
Cut back on the expenses that have little value to you. For example, you can drop your cable service, consider a cheaper cell phone plan, or call your utility provider about more affordable options.
3. Communicate with your creditor.
If you experience a drop in income and have debt, proactively contact your creditors. Ask about the process for assistance if needed. Most lenders have enhanced their service due to COVID-19 related hardships.
4. Stockpile cash.
If you fear you might lose your job due to the recession, your first goal should be to stockpile cash. This may mean stopping accelerated debt payments and focusing on saving money in an emergency fund to survive.
5. Be prepared to triage.
In this case, triaging means prioritizing your resources for the best use. If your money cannot cover all your bills, prioritize your spending to cover your basic needs, and determine what is less of a priority.
Proactively contact any organization you cannot pay and make arrangements. It’s better to pay part of your bill than to pay nothing.
Ask how your creditor will report the arrangement to the credit bureaus, the arrangement’s timeframe, and how your creditor expects you to repay missed payments once the agreement ends.
6. Find a community
The mental strain of a recession and its financial impact is difficult. Find an online community of people with shared experiences, confide in your family and friends, and prioritize finding activities that lift your spirits.
7. Polish up your resume.
Go on websites like LinkedIn and Glassdoor, update your resume, and research jobs in your industry. This research will help you gauge how quickly you can find another job that meets your salary expectations and standard of living.
Going through a recession is tough, especially when you turn on the news and the world seems to be falling apart. If you get nothing else from this blog post, know that you may not be able to control your circumstances, but you can proactively manage the impact of those circumstances.
It will be tough, but you can make it through and perhaps find yourself in a more secure financial situation in the near future.