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Whether you’re working from home or unemployed, chances are that you may find yourself with more time on your hands these days than you normally do. As a result, now is a great time to check in to make sure that you are prepared to survive a recession financially.
Here’s 4 tips we created to help you not only survive, but thrive, in an economic downturn.
1. Create a separate emergency fund.
Do you have between 3 and 6 months worth of expenses saved up for an emergency fund?
If not, then:
Action Step: Create a separate sub-account for your emergency fund.
It’s easy to take a look at your bank statements and think to yourself “oh sure I have enough money in savings,” but how much is actual savings vs. money you put aside for an emergency fund? I know I’m guilty of not separating the 2, and my Quarantine Resolution is to finally carve out a separate account!
2. Check in with your debt.
Whether it be student loans, credit card debt, or a mortgage, chances are, you probably have some sort of debt. There’s already thousands of blogs and websites devoted to guiding you how to pay down debt, so we won’t cover that here. All we’re asking you to do is log in.
Action Step: Log into accounts and check your debt balance.
The first step to creating a plan to pay down debt is knowing where you stand. You can’t do that if you have your head in the sand, and are clueless about how much you actually owe and how much interest is accumulating!
3. Consider refinancing your student loans.
If you are employed and have a stable income (which, given the Coronavirus era we live in, is quite a feat!) and you have student loans, consider refinancing. Interest rates are at historic lows, so take advantage of this.
Note: As part of the federal stimulus, the government has provided relief to federal loan borrowers relief by automatically placing loans under forbearance, allowing these borrowers to stop monthly payments until September 30 , 2020. If you already use a private lender, ask them directly what their policies are (although chances are, you won’t be eligible for the same type of loan assistance).
Action Step: Start by comparing rates across different lenders.
This is free and does not affect your credit score. Make a quick spreadsheet to keep track of all of the lenders and estimates you receive, so that you don’t forget the rates when it’s time to make a decision.
4. Check in with your retirement.
401(k)s, IRAs, or pension plans – whatever it is you have, dig up that long lost username and password, and check your balance.
Action Step: Get contributions out of money market accounts.
In order reap the rewards of compounding, you need to invest your money, a.k.a. do something. Just because you opened a retirement and make regular contributions doesn’t mean you’re finished – make sure you’ve invested in mutual funds and ETFs so that your money is working for you.
5. Create a financial goal for yourself.
Each person’s financial journey is unique. For some, it can mean dabbling in investing, for others, it can mean developing a debt repayment plan. Use these tips as a resource to help you get started on developing a personal financial plan.
Action Step: Set a financial goal that you want to accomplish in the next 2 months.
Is your emergency fund full, retirement in place, and debt under control? OK, now how about setting a plan to learn more about ETFs? What about your retirement allocation – if you’re 24 years old and have 90% of your retirement invested in bonds, consider if it makes sense to re-allocate towards stocks.The personal finance journey is not static – it is constantly evolving as you grow and mature.
Take advantage of this down cycle and use these tips to take a closer look at your finances, so that you’ll be prepared for the next one!
What are your recession money tips? Share in the comments below!