I need to prepare

I’m anxious about the possible future impact on my finances and want to take steps now to prepare.

Step 1: Create a crisis budget

A crisis budget is a listing of the essential monthly expenses that you can’t avoid when a crisis hits, such as housing, food and insurance premiums. Anyone who hasn’t yet reached financial independence needs a crisis budget – this can help you navigate many life scenarios, including non-crisis situations such as parental leave or a sabbatical.

  • Check out various budgeting apps that can help you quickly evaluate past spending – this is where you’ll get the numbers
  • Tally your essential expenses and multiply that by 3 – that will give you a preliminary savings goal if you’re just starting your emergency fund
  • Check out point #2 in this blog post for a few other examples of how to create a crisis budget
  • Here’s another helpful resource to give you some ideas to prepare: How one woman survived a furlough without payday loans

Step 2: Bulk up savings

While we wait out the COVID-19 crisis, there are ample opportunities to manage cash flow in a way that can help you build up your savings. The more you have in cash if/when you experience a lay-off or income disruption, the less stressful such an event will be on your finances. Here are some ideas to fatten up your savings account.

Step 3: Pay off or refinance high-interest rate debt

This step may seem in conflict with step 2, but it’s best to think of it as both/and rather than either/or. Ideally, you’d work to pay off any credit card or other high interest (6%+) debt, but if that’s not realistic, it can make sense to refinance if possible. Since rates are near 0% right now, you may be able to refinance debt, which would decrease the total cost of any debt you may have, but could also decrease your required payments if you need to lower your obligations. If nothing else, lowering the interest on any debt you’re carrying will lower the impact of any need to pull back on accelerated pay-off plans.

Step 4: Delay large purchases if possible

Many of us have already had to adjust some of our life plans due to the COVID-19 pandemic – canceled vacations, postponed weddings and even graduation celebrations being moved online are all some of the sacrifices we’ve had to make in order to keep our social distance and help slow the spread of the virus. If our economy ends up taking a more long-lasting downturn even after the limits on large gatherings are eased, then we may need to make more of those tough choices out of a need to preserve cash.

  • Avoid taking on any additional debt for non-essential purchases if at all possible
  • Use this money, along with other life expenses you currently don’t have (such as commuting, personal care, vacationing, dining out, etc.) to increase savings and pay down debt

Step 5: Look for opportunities to save for longer-term goals

Once you’ve ensured that your financial foundation is set (you have 6 months of essential expenses in savings and you’ve paid off high-interest rate debt), you will have some breathing room to continue working toward longer-term goals. Should you end up out of work or facing reduced income, you can quickly pare back these plans as needed. In the meantime, there is actually opportunity to make significant progress toward future goals if you have the financial capacity.

  • If you are eligible to make contributions to a Health Savings Account (HSA), work to contribute the maximum allowed for the year, as laid out in this post.
  • Increase 401(k) contributions to help get you on track for retirement (this calculator can help you determine that)
  • If you’re on track for retirement and have a future education to fund, a 529 Savings Plan is worth considering
  • Remember that when the stock market is down, it’s actually an opportunity to buy for those of us with a longer timeframe
  • Focus on money moves that give you flexibility in times of income uncertainty
  • Wash your hands!

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All content is for informational purposes only and should never be considered, conveyed, or shared as legal, tax, investment, or financial advice under any circumstance.