COVID-19 has clearly been harmful to not only Americans' health, but their paychecks as well. With unemployment claims spiking and countless businesses shutting down for the foreseeable future, it's clear that it may take quite some time for the economy to recover once the current crisis subsides.
But will that recovery be quick? A good 63% of Americans assume it won't be, as they think the COVID-19 outbreak will spur a major recession, according to a just-released study by Allianz Life.
Of course, it's too soon to tell whether that will happen, and a lot will depend on factors such as:
- How quickly health officials manage to flatten the COVID-19 curve.
- Whether effective treatment can be deployed to critical patients, as a vaccine is most likely 12 to 18 months away.
- How soon social distancing measures can be lifted, whether partially or fully.
But here's what we do know: COVID-19's impact has already taken an economic toll, so it's not a bad idea to prepare for the possibility that a recession may be coming. Here's how.
1. Boost your emergency fund
If you're out of work because of COVID-19, this advice doesn't apply to you -- you can't be expected to boost your cash reserves when you have no money coming in. But if you've managed to retain your paycheck thus far, take the opportunity to pad your savings account so that if things get worse and layoffs become even more widespread, you'll have cash reserves to fall back on. Under normal circumstances, it's good to have three to six months' worth of living expenses in emergency savings, but given the many unknowns we're facing today, aiming for the higher end of that range is an even better idea.2.
2. Start trimming expenses
You may not feel compelled to cut back on takeout food orders or other luxuries if you're still able to work. And to be clear, those modest indulgences can indeed be a source of comfort at a time when you're locked in your home, scared for your health and the health of the people you love. But if your emergency savings need work, go through your budget and identify some bills you can cut back on for now.
3. Secure a second income source
This advice also won't work for everyone, because if you're now stuck at home trying to manage your full-time job while also wrangling and home-schooling kids, squeezing in a second gig likely won't work. But if you don't have children and can manage a few extra hours of remote work a week, it wouldn't hurt to start blogging, editing, or designing websites for a living -- or doing something you can similarly pull off from the safety of home. Having an extra income stream could come in quite handy if a recession strikes and your main job is compromised.
It's frightening to contemplate a major recession -- there's no question about that. But preparing for one is a good way to get some peace of mind during an otherwise unsettling time.