Published in: Banks | July 1, 2020
By: Maurie Backman
The U.S. economy has clearly been sluggish since March when jobs started disappearing left and right. But it wasn't until June that economists from the National Bureau of Economic Research declared that we're officially in a recession. And that means now's the time to get your finances in order in case things get worse. Here are a few essential moves to make.
During a recession, a little frugality goes a long way. By cutting back on non-essentials you'll free up cash for other important purposes, which helps ensure that you're able to keep paying your non-negotiable bills like food, utilities, and medication. Consider cutting out expenses like subscription boxes or your gym membership -- things that may be nice to have, but that you can also get by without.
Under normal circumstances, it's smart to have three to six months' worth of living expenses tucked away in a savings account. But during a recession, you'd be wise to aim for the higher end of that range. If you lose your job during a recession, it could take a long time to become employed again. That means you'll need extra cash in the bank to tide yourself over in case you're laid off and your unemployment benefits only replace a fraction of your paycheck.
Expensive debt can eat away at your income, and if you lose your job and that income goes down, that's a bad situation to be in. That's why it pays to knock out high-interest debt while you can. If you're carrying a credit card balance, start making more than your minimum monthly payment to chip away at that total.
If you own a home, now may be a good time to secure a line of credit based on the equity you have in that property. With a home equity line of credit (HELOC), you don't borrow a sum of money outright; you simply establish a line of credit you can draw from. That way you're not racking up interest charges until you actually need that money, but it's also there for you if your financial situation worsens. That said, some lenders are being more judicious with approving HELOCs, so if you're going to apply, it pays to move quickly.
There's a lot less job security during a recession, so it pays to have an additional income source in case your main one is taken away. The COVID-19 situation means that some side hustles, like waiting tables at a restaurant on weekends or moonlighting as a personal shopper, may not be doable or desirable. Instead, think about work you can do from the comfort of home. You may be able to set up a remote tutoring gig, edit websites, or do something that doesn't require you to physically leave your comfort zone.
Nobody wants to deal with a recession, but that's the reality we're in. The good news, however, is that you can take steps to better weather the storm and come out with minimal financial scarring.
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