There are two big unknowns in all of our lives right now: What’s going to happen with the COVID-19 pandemic, and what it will mean for the economy. If we enter a post-pandemic recession (or are already in a mid-pandemic recession), what will that mean for our jobs and livelihoods—and what should we be doing financially to prepare?
Some of us are already having to rethink our spending habits to make ends meet. Others may feel more financially secure thanks to high salaries, six-month emergency funds or the ability to work remotely. But when recessions come, they tend to come for everybody—so it’s time for all of us to reevaluate our budgets and, potentially, start saving as much as we can.
Here are three pieces of advice to get you started:
Treat your income like it’s temporary
I’ve written about this before, but it’s an important reminder: Whatever income you are earning right now is temporary. If you are earning less than you’d like, there could be opportunities to earn more in the future (promotions, new jobs, side hustles, etc.). If you are happy with your current income, don’t take it for granted—and don’t assume there will always be more money coming in.
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This mindset becomes even more important during a recession. When jobs are harder to come by, it’s important to treat your current income as if it might need to stretch for as long as possible. This doesn’t mean you need to cut back on all discretionary spending, but you might want to consider trimming some of your expenses so that you can put more money into savings or an emergency fund.
Saving money now is worth more than spending money later
On the subject of saving versus spending: A lot of retailers may start offering significant sales and discounts as a way to entice shoppers to start spending again—but buying something at a bargain may not be the smartest financial move.
As I Will Teach You To Be Rich’s Ramit Sethi explains, in The New York Times:
When we’re making financial decisions in the face of so many unknowns, it’s important to err on the side of cash. Mr. Sethi recommends that if you have any plans for the rest of the year, like a wedding or a big trip, consider canceling them even if it incurs higher costs later. “In a time like this, particularly with increasing unemployment and increasing uncertainty, money in your pocket now is worth more than money in your pocket later.”
This advice doesn’t apply only to future purchases, it applies to any budget item that you could spend less on now, like passing on a great deal on a new car that may cost more next year, or using coupons before they expire.
In other words: If you spot a really great deal, remind yourself that having cash on hand is often more valuable than getting a price cut on a purchase that isn’t absolutely necessary. Saving $20 might still mean spending $80, after all—and you might be able to put that $80 to better use.
Try budgeting for 30 days, then reevaluate
If you’re worried about how long your money might last during the pandemic and/or a potential recession—or if you’re simply unsure about what you should be doing with your money right now—I recommend taking the Money Moves Quiz from online financial counseling service SmartPath.
When I took the quiz, SmartPath offered this advice:
You have good safety nets. Still, we encourage you to cut expenses and save every dollar for the next 30 days. Then, reevaluate.
I’ll offer the same advice to you, no matter the current condition of your financial safety net. Create a budget, cut your expenses and save every dollar you can for the next 30 days, then evaluate: Did you actually trim as much as you could’ve? Did you make any purchases you regret? Were there any purchases you should have made but didn’t? How did your budget affect your overall quality of life?
Once you know the answers to these questions, you can reconsider and refresh your budget for the next 30 days. Continue to budget, reflect and repeat while saving as much money as possible—because whether you feel financially secure or financially anxious, right now it’s essential to start preparing for an uncertain future.
