The spread of COVID forced many businesses to close their doors, impacting the economy and many people’s financial positions. Though some states have begun to reopen, these uncertain times have left many wondering if we will need to shut down again and how that may further impact their finances.
If you’re worried about the current pandemic and how a second wave may affect you, know that you’re not alone. Many people share the same concerns and are seeking ways to recession-proof their funds.
To help, here are five ways you can better handle your money and prepare for what may come:
1. Save Where Possible
To help preserve your money, seek ways to cut down on unnecessary spending. Take a look at your current budget and identify which expenses you can temporarily cut. Consider scaling back on discretionary expenditures like going out to eat, cable television, or taking vacations and putting that money toward living expenses or emergency savings instead.
Prioritize essentials like housing, utilities, food, transportation, and outstanding debt. If you’re paying on a mortgage or another loan or if you have open credit accounts, work with your lenders to see if they offer any type of relief programs. Some may be willing to waive late fees or lower your monthly payments if you’re unable to meet current arrangements.
Taking steps to save money now will help you prepare for any future crises.
2. Consider Short-Term Financial Netting
If you’re a homeowner, you may be able to use your home’s equity to consolidate debt or pay off high-interest loans.
Through a home equity loan (HEL) or home equity line of credit (HELOC), you will either receive a lump-sum that you pay back over time or a running balance that you pay back as you spend. These can be used in the short-term to give you an added financial safety net as you get back on your feet.
One caveat to leveraging your home equity is that your property becomes collateral. If you are unable to meet monthly payments and default on your loan, your home may be subject to foreclosure.
Before applying, make sure you are able to take on the added monthly debt. In addition, if taking out a HEL would prevent you from adding to your savings or making other payments, it’s best not to apply.
3. Invest Wisely
You may feel reluctant to invest in times of uncertainty. However, it’s still possible to invest during a crisis, as long as you are strategic with your spending. Avoid putting all of your eggs in one basket and instead funnel your money across multiple sectors.
That way, if one sector experiences a greater hit, you’re not at a complete loss. Research which industries are doing particularly well, even amid the pandemic, and stick to low-risk investments.
As you reevaluate your strategy, consider investing in consumer staples and non-cyclical industries. Consumer staples are necessities like food and household goods that homeowners need regardless of the economic climate, while non-cyclical industries are those with stable, year-round demand.
These are generally safer investments that can provide passive income during a time of need and may yield sizable profits in the long-run.
4. Pad Your Savings
As the economy suffers, your job or income may be at greater risk. Given this, many individuals have an emergency fund that can be used to temporarily keep them afloat during times of need. If you fall ill or experience a dip in income, an emergency fund provides a safety net to support you until you can get back on your feet.
If possible, you should have at least three months’ worth of your wages stashed away in case of a health or economic crisis. That way, you won’t have to rely on credit immediately or use your retirement savings should a second wave emerge.
If you don’t have these savings built up yet, you can still take all of the steps to build an emergency fund to start saving where you can. Having something is better than nothing, and even saving a small amount can help you recover from a future crisis quicker.
5. Refinance Your Loans
Historically low interest rates during times of uncertainty make refinancing an attractive option for anyone who has outstanding loans or a mortgage. By refinancing your loans now, you may be able to lock in a better rate, change your loan term, and lower your monthly payments.
A pandemic may actually be a great time to replace your current loan with one that has more favorable terms. That way, you can use your cost savings to pay off higher-interest debts quicker and bolster your emergency account.
However, you should bear in mind that it’s not always wise to refinance. For instance, while you may want to lower your monthly expenses, extending your loan term means you’ll pay more in interest over time.
In addition, if you’re currently paying off federal student loans, you may lose out on some benefits if you refinance into a private loan. That’s why it’s best to weigh the pros and cons of refinancing with a financial expert before making any final decisions.
There’s a lot of uncertainty regarding the economy, and navigating these times is a new challenge for everyone. However, by being strategic with your money, you can ensure your financial well being through these turbulent times and better prepare for potential hurdles in the future.