How To Survive A Recession Financially - a Guide To COVID-19
Updated: Oct 16, 2020
It may not feel like it, but there is a lot you can do
Almost overnight, financial education and preparedness became way more important.
In a matter of weeks, the effects of the COVID-19 virus have landed on more than just our hospitals. Our local businesses, startups, restaurants and bars are all feeling the pinch, which ripples into our pockets as consumers, individuals, families and communities too.
Hours are being cut, doors are being closed, and many are scrambling.
So how can we all be a little more calm?
Right now, that calm is Financial Intelligence - knowing what to do in a time that’s incredibly emotion-driven. Financial Intelligence is all about healthy money habits. One silver lining of this shutdown is that it can really help you set good new habits!
5 Tips on How to Survive a Recession Financially
Below are 5 important strategies to managing your money in a very uncertain time. We invite you to review this guide and share this with anyone else that’s feeling challenged financially right at this moment. Here's what it covers:
1. Spending & Essentialism
2. Strategies for Bills During Hardship
3. Use of Credit & Loans
4. Making Extra Income
5. Online Services for Support
Money is so emotional.
When there is so much information bombarding us at all times, it is very easy to lose control of good spending habits. We humans don’t make the best choices when we panic, so take a breath and let’s make a plan.
Part 1: Spending & Essentialism
For most of us, this time is going to be about understanding what is a ‘want’ versus what is a ‘need.’ Those lines might be confusing right now. For some, they may seem really different compared to mid-February.
The first thing we recommend is to make a list of all your current financial obligations, and break them into Essential vs. Non-Essential.
Here are some examples:
Essentials - Housing, Car, Health Care, Debt repayment, Utilities, Groceries etc…
Non-Essentials* - Restaurants, Bars, Vacations, Clothes, Shoes, Tech, etc…
With the exception of food, health, and safety spending, most essentials are just our recurring bills. We’ll cover the bills later in this post, but let’s start with a list of recommendations and resources to help cut back the non-essential spending:
1. Learn to cook bulk meals - Buy ingredients and cook bulk meals like stews, casseroles, soups, stir fry etc… Here are two great resources for ideas of cheap bulk cooking to save money and eat healthier than carry out.
2. Pick up a new hobby - There are many hobbies that are free or very low cost -- think hiking, cooking, gardening, playing an instrument, writing a blog, board games, exercise, vlogging, meditation etc… Some of these can even turn into side income, but regardless, doing things you enjoy makes you feel better, and therefore less likely to spend.
3. Watch out for online shopping sales - Everything is on sale right now. AND it’s easy to feel lonely and down on yourself right now, but if you are really concerned about your income & financial situation, then don’t buy things you don’t need! If there’s ever a time to cut back, NOW is that time.
Here’s some help - Our 1 hour mini-course Prime Spending: How to Control Your Spending Online is free and only takes 1 hour. It’s all about how to control the emotional urges to shop online.
4. Be Practical - What has value, use and utility has priority right now. Things that do not provide or get used do not. Be mindful of your spending and if you need help with an individual purchase decision, call a friend.
5. The 24-hour Cart Rule - Since everyone is online and online spending is normal, put something in your cart but wait 24 hours before purchasing. That distance can create a calming for your emotional and impulsive ideas. Give it a break. Come back later and see if you still need it.
Non-essential spending is very emotional, so the more you can work on yourself, the easier it will be to let go of non-essential spending. Staying healthy is also a huge benefit here as well. Supporting local and small businesses is very important to us, but we mean non-essential when you are really struggling financially.
PART 2: Strategies for Bills during Hardship
Essential spending is unavoidable. So what can you do if you’re feeling underwater, if your recurring bills can’t quickly change and you need a way out?
If you need immediate help with your bills, contact your creditors right away. Most companies and organizations are offering different types of financial assistance right now. Many are waiving late fees, but you should notify them as best practice.
Here are some strategies to cut back on your Essentials:
1. Adjust your housing situation - Can you get a roommate? Move in with someone? Move home with parents temporarily? This may seem drastic, but if it keeps you out of debt, it’s likely worth it. The government may forgive rent/mortgage payments temporarily but there’s no way to know if or for how long.
2. For homeowners, consider refinancing - Mortgage rates hit an all-time low in early March. Refinancing for a lower payment depends on a variety of factors, so check out this Discover calculator to see if it’s a good option for you. Financial experts generally recommend considering refinancing if you can get a 0.5% to 1% point drop in your rate. But, know that many mortgage lenders are overwhelmed right now as well and that this process could be slower than typical.
3. Contact your credit card company - Capital One, Chase, Citi and Wells Fargo, and some credit unions are encouraging people to call them and see how to help with financial commitments. More will likely join soon. Here’s a list of their contact numbers.
4. Adjust your student loan payments - There will be an interest freeze on student loans going into effect soon. This means that if you defer your loan payments, you won’t accrue extra interest. Contact your student loan provider to see how you can best adjust your payments:
Defer your loans - This allows you to put off the payment for now. Forbearance is a similar strategy used, but deferment is usually better. Either way, contact your provider and learn what’s best.
Switch to an income repayment plan - This allows you to adjust payments based on your income. Click here to apply. Click here to see potential downsides that may arise down the road. However, you can always switch back later.
Refinance your loans - This only works if you already have private student loans. Private student loans are case by case on how they offer forgiveness. So contact them and be sure you understand the mid/long term consequences of any help they provide. If you have public loans, don’t switch to private.
5. Contact your Utility providers - Many providers are suspending service disconnections and waiving new late payment charges at least until May 1, and will with customers on a case-by-case basis to establish payment arrangements and identify service assistance options.
6. What about your car? - Can you refinance your car payment? Is it the right time to trade in and downsize?