First, the bad news: That recession you may have heard about — the one way off in the distant, unknown future — may be here sooner than we think.
In fact, thanks to the COVID-19 pandemic and subsequent economic impact of social distancing, it’s possible we’re already in a recession.
The National Bureau of Economic Research defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months.” So, if this economic landslide continues as long as experts seem to think it will, then we are indeed at the beginning of an honest-to-goodness recession.
Now, some good news: While these are unprecedented times, the playbook for preparing your finances ahead of (or at the beginning of) a recession is still valid. And the even better news? The government is stepping in to help in a number of ways.
In order to help you navigate the coming weeks and months, let’s look at it from both angles. In this post, we’ll share best money practices that can help you weather any recession, as well as review the particulars of economic aid available during this particular recession.
Step 1: Identify Ways to Cut Back
Start by going through your budget to find ways to reduce spending. If you don’t have an existing budget, we recommend looking at one of the many free templates available online.
See what non-essential items you can cut first. Now, with the recommendations from the Center for Disease Control to stay indoors as much as possible, it might feel easy to cut your clothing budget, but more of a sacrifice to give up online entertainment. Fortunately, Quartz has great recommendations for reduced price and free trial subscriptions on the best streaming services.
Step 2: Boost Your Emergency Savings
Next, look for ways to boost your emergency fund.
If you were able to make cuts to your budget, funnel those savings into your savings account each month. It may not seem like a lot, but anything you can save will still help you down the line.
Fortunately, private companies and the government have also stepped up to provide needed financial assistance amid the COVID-19 outbreak. Most notably, the recent government stimulus bill qualifies individuals making under $75,000 annually to a $1,200 payout, and unemployment assistance has been extended to include those not usually eligible like freelancers and gig workers.
Step 3: Assess Your Late and Non-payment Penalties
Once you eliminate non-essential items, tackle fixed expenses and debt obligations. For most individuals this means rent or mortgage, cell phone bills, insurance, credit card payments and utilities.
You may be able to cut back on your monthly expenses or shop around for cheaper options. For example, since you’re stuck at home anyway, lowering your data plan can save money on your wireless bill. And if you haven’t compared prices for renters or homeowner’s insurance lately, do so now.
We strongly recommend paying bills in full if you can, as late payments and non-payments incur more fees and interest and can potentially cause termination of important services. However, these are certainly not normal times, and if you’ve been laid off, are sick or are otherwise unemployed due to the COVID-19 outbreak, we recommend checking with the individual companies you owe to see how their policies may have changed for customers affected by the health crisis. Keep in mind, you’ll likely have to pay these bills once the crisis period ends, but this can give you some relief in the meantime.
Here’s a short list of some of the biggest companies whose policies have expanded to help customers during the public COVID-19 crisis:
- Through the Federal Communications Commission’s“Keep Americans Connected” initiative, more than 550 broadband and cellphone and service providers — like AT&T, Verizon and T-Mobile —have pledged to halt service suspensions and offer other forms of assistance to customers.
- PG&E, ConEdison, Entergy, and many other utility companies have pledged to not terminate service.
- Federal student loan payments and interest have been paused through Sept. 30.
- Fannie Mae and Freddie Mac have offered mortgage assistance for borrows for up to a year.
- As of now there are no national or statewide plans to freeze rent; however, many areas have put evictions on hold. A team at Columbia Law School is maintaining a list of local evictions rulings.
- Many insurance companies are foregoing insurance cancelations or allowing impacted customers to miss payments. All State customers, for example, can skip two payments if needed. Geico has stopped cancelations through April and offers flexible payment plans.
- Bank of America, Barclay’s and Capital One as well as many other credit card issues have all announced customers affected by COVID-19 should call the number on the back of their card and ask about customer-assistance plans for payments. However, these programs haven’t been explicit, and we advise you to clarify whether you will still accrue interest even in the event late penalties are waived.
Step 4: Create a Debt Repayment Plan
When you’re worried about making ends meet, your debts can add pressure to an already stressful situation. We recommend developing a debt strategy now to pay off high-interest loans, pay off and close accounts, and/or increase your credit score. Having a plan to tackle your debt can help you feel more in control, even during tough times.
It’s Not Too Late to Protect Your Money
Cut spending, assess savings, and make a plan. When you breakCOVID-19 planning down into these three steps, it will hopefully feel less overwhelming, even in trying times.
If you need more guidance during these times, check out our tips to help you budget and reduce spending, or reach out to your local government or debt relief organizations.