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.
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 debt
Ideally, you’d work to pay off any credit card or other high-interest debt (generally above 6%), but if that’s not realistic refinancing could decrease required payments and free up cash flow.
Step 4: Look for opportunities to save for longer-term goals
Once you’ve ensured that your financial foundation is set (i.e., you have 3-6 months of essential expenses in savings and you’ve paid off high-interest 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 in the future, you can quickly pare back these plans as needed. In the meantime, there is opportunity to make significant progress toward future goals if you have the financial capacity.
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