It has been a difficult week for the economy, the stock market and numerous industries — all likely impacting your job, finances and daily life — due to the coronavirus outbreak (COVID-19).
Money expert Clark Howard says the most important thing you can do right now is start taking steps to get ready for a potential recession.
“Where we stand today, we’re going to see layoffs coming. And you have to be prepared for that,” Clark says.
You might be nervous about what this means for you. What happens if your paycheck gets smaller or you lose your job?
The most important thing to remember is to stay calm and not panic.
There are things you can do today to put yourself in a better financial situation. Even accomplishing one of the steps below will better prepare you for any financial uncertainty.
7 Steps to Prepare Your Finances for a Recession
1. Create a Bare-Bones Budget
The first thing you need to do is to create a “bare-bones” budget, which should be separate from your regular budget if you have one.
List all of your basic bills, including amounts and due dates. A few examples include mortgage/rent, utilities and insurance. You should also include expenses like food and gas, but remember to keep your budget down to only necessities. Food is essential to survive, but you may not be spending as much as normal at the grocery store if your monthly income is reduced.
2. Make Spending Cuts
It is crucial to spend less money than you make and use the extra money from your paycheck to build an emergency fund or pay down debt.
Look at your bank statement from the last three months and identify the areas where you can cut back. Here are a few examples:
- Cable TV
- Cell phone plan
- Gym membership
- Premium online music
3. Add Up Your Debts
One of Clark’s three tips to prepare your finances for a recession is to pay down debt.
Gather all of your credit card statements and make a list of the balance, minimum payments, interest rates and due dates of each card.
If you can, use the extra cash from step two above to reduce debts. At the very least, keep paying the minimum balance.
4. Withdraw Emergency Cash
Clark recommends that you keep cash at home in case there is an emergency that affects our banking systems. Here’s his rule to calculate how much you need:
“Figure you need to cover three days of ‘walking around’ money,” Clark says. Whatever you would typically charge or use a debit card for over a three day period, that’s what you need to have on hand.”
Clark keeps $400 in a safe place in his home, just in case.
Before you head to the nearest ATM, use this list to find a fee-free location.
5. File Your Taxes
If you’re expecting a tax refund, it’s always best to file your taxes as early as possible. And with so many people spending more time at home, this is a good time to spend a few hours and get the job done.
To get your refund faster, remember to file your taxes electronically and select the direct deposit option. See Team Clark’s list of FREE state and federal tax filing options for 2020 here!
6. Stock Up on Medication
The Centers for Disease Control and Prevention is recommending that you create an emergency supply of prescription medication.
To increase your supply, contact your insurance company to request a bigger fill. If that doesn’t work, talk to your doctor about a 90-day prescription.
7. Evaluate Your Travel Plans
From updating policies to shutting down operations, the travel industry is rapidly changing right now.
If you already booked a trip and you are nervous about traveling, do not go.
“You need to make your own decision now that rebooking policies have become more favorable from most travel suppliers,” Clark says. “And that means making your own decision in terms of your health and how you feel about traveling. Traveling is about fun and getting away from it all, but if you’re going to feel a wall of worry, don’t go right now.”
Some people, like Clark, are still planning to travel and looking for deals. Before you book your trip, remember these three tips:
- Book your travel on a credit card, not a debit card. You have a lot more options to get your money back when you use a credit card instead of a debit card.
- Screenshot the travel company’s (hotel or airline) change or cancellation policy. The rules are changing very quickly, so capture the policy at the time of your booking in case you need to show proof if you decide to cancel.
- Purchase cancel for any reason travel insurance. A cancel-for-any-reason policy can typically get you about 75% of your money back if you cancel your travel plans.
Clark says that you have to prepare for the worst and hope for the best. But remember, do not panic. If you take the steps to prepare your wallet and this turns out better than we expect, your financial life is healthier moving forward.