How to Protect Your Finances During an Economic Slowdown
As the economy faces uncertain times due to the Coronavirus (COVID-19) pandemic, it’s a good time to evaluate how your money is doing and whether you’re prepared to weather the storm. The more proactive you can be now, the better prepared you’ll be should you encounter hardship later.
Here are 7 things you can do now to protect your finances:
Rein in your spending. First and foremost, look at where your money is going. Can you identify trends and spending habits? Are there things you can cut back on or remove from your budget entirely? Instead of sifting through various bills and receipts, it might be more beneficial to use a money management tool to help you track your spending and identify ways to scale back.
Only purchase items you can afford. Understanding your finances and limitations is important during this time to ensure you have enough income to pay for your everyday expenses. To help watch your spending, it’s best to rely on the money you have available in your accounts, opposed to using credit or loans as much as possible, as the money is readily available to pay in full.
Build your emergency fund. When you have an emergency fund set aside, financial hardships cause less financial burden or stress. How much should you have saved? It depends on your situation, but it’s recommended to have six months of living expenses set aside.1 Consider cutting back on items or services that are not a necessity to transfer more into your savings every month. To save without thinking about it, set up automatic transfers every paycheck to transfer into your savings account.
Find ways to make extra income. Get a part-time job or do some work on the side to make extra cash to help cover your monthly expenses and build your savings. Clean out your closets and have a garage sale, make and sell homemade goods, offer to do landscaping for your friends and neighbors, or become a tutor. You can find several ideas just by searching online.
Consider refinancing your home. It may be a great time to look at refinancing options while mortgage rates are low. If you’re currently in an adjustable rate mortgage, a fixed rate option may be better suited for the current economic environment.
Protect and monitor your credit score. Pay your bills and make payments to your loans in a timely manner and avoid taking on more debt if you can. Your payment history and credit utilization affect your credit score the most. By having a good credit score, you’ll have access to credit at a reasonable rate because you took measures to safeguard it. Additionally, you can request a free weekly credit report from each of the three major credit bureaus through April 2021.3
Continue contributing to your 401(k). Given the recent market volatility, you may be unnerved and not sure how to handle your investments and retirement accounts. If you’re able to, experts say it’s best to continue contributing to your retirement plans as usual to avoid any long-term impact to your strategy.4
It’s difficult to determine how COVID-19 will fully impact our economy, workforce, and everyday life; the more you do now to protect your finances and assets, the better you’ll be post COVID-19. During this economic slowdown, the easiest thing to do is watch your spending and build your emergency fund when you can.