I’ve never lived through a pandemic before, but I have lived through a recession. In 2008 I watched the value of my home and investments drop like a rock. A few short years later I lost my job. I don’t know if we are heading for a recession, but here is my advice on how to prepare for a recession in case we do.
Save Every Penny
First, things first. There is so much uncertainty right now. What should we do?
To prepare for a recession I think it’s important to focus on the worst case scenario. Okay, I know that sounds a little drastic, especially since I just wrote a post about silver linings and all, but in the case of a recession I think it’s best to hope for the best while simultaneously preparing for the worst.
Having a job today does not mean you will be guaranteed one tomorrow. The Great Recession began in December of 2007, but I lost my job, (as a direct result of the financial downturn), four years later.
My best advice is to save every penny you can even if your job feels safe and secure. If you currently have a job do all that you can to set aside as much as possible for savings. Try your best to cut out all unnecessary expenses and live on a bare bones budget for awhile.
If you lost your job file for unemployment. Don’t hesitate to apply even if your current financial position seems stable. No one knows how long a recession might last or how long it will take you to find another position.
The same goes for small business loans or any other financial assistance others are willing to give you.
Just remember to give back to your community when you find yourself on solid financial footing in the future.
Become a Star Employee
If you have a job do your best to stand out to your boss and coworkers. It may be difficult to work from home with children underfoot, but try your best to shut your family out during important meetings and make sure you don’t fall behind on your work.
Point out all of the reasons you are a pivotal employee. This may not be the easiest time to put your best efforts into work, but it is necessary.
Layoffs can roll through a company quite quickly and you will not have the time to prove yourself later. Make sure you are at the bottom of the layoff list; not at the top of it. Prepare for a recession by putting in your best effort right now.
Update Your Resume and Interview
If you are nervous about your future job prospects now is the time to update your resume and start interviewing for other positions outside of your company. The age old wisdom is true; it’s always better to search for a job when you don’t need one.
Remember what I said about preparing for the worst case scenario? This is the number one way to get ready. It’s much easier to undergo the interviewing process when you don’t feel the pressure to find a new job right away. You can also find out what other companies are looking for and whether or not your skills need refreshing.
My prior company cut hundreds of employees over the course of six months. The stress levels of prepared coworkers were much lower than those who had not updated their resumes or interviewed for years.
It also took them much less time to find a job. Do yourself a favor and plan for an eventual job loss even if it feels unlikely. Prepare for a recession by getting ahead of your competition. Hone your interview skills and have a freshly updated resume ready for the job hunting process.
Side Gigs: Think Outside the Box
If you own a business see if there is a way to move your business online. College students in my town started offering virtual baby sitting and tutoring sessions this week. One graduating senior offered to play card games while another offered virtual yoga sessions.
A few local parents took him up on the offer. Their children played games while they attended online work meetings.
A personal trainer asked clients if they’d like to conduct virtual training sessions and a physical therapist offered step-by-step exercises for a neighbor with knee trouble.
It’s time to think outside of the box. There are those who need help even from their homes. What can you offer?
Use Your Stimulus Check to Start an Emergency Fund
Many of us will receive stimulus checks in the next few weeks or months, but did you know that stimulus checks don’t really stimulate the economy?
In 2008 Americans spent less than 20% of all stimulus checks on goods and services. Over 50% of recipients used the money to pay bills and utilities. The remaining 30% placed their checks directly into savings.
While the world at large will tell you to spend this money I think you should do so judiciously. If you don’t need this money and don’t have an emergency fund consider using this money to start one. If you don’t need this money you should still save a really big portion of it.
It’s unclear what the long term implications of this pandemic will be. Now is the time to set aside the largest emergency fund possible. No matter how big it is, it may not be big enough.
Prepare for the recession by saving those stimulus checks.
Search for Money & Sell Stuff
A friend recently asked for advice on where to find money. I told her to do what I have done in the past, begin by searching for money you may have hidden away somewhere. Search your coat pockets, jackets, purses and random areas of the car where you randomly stash cash.
If you use reward credit cards consider converting your points to pay off a future bill or use them to order gift cards to restaurants and big box stores.
Some credit cards will offer cash back, so take a look at your redemption options and request a check if you can. I know some travel hackers are cringing at the very idea of cashing out these points, but if you need cash redeem them.
If you have good credit sign up for a 0% interest credit card, but try not to use it. If you already have debt transfer it over to this card and make sure you pay the minimum amount required each month.
Next look around your house for any items that you can sell. It’s tough to sell on eBay right now, but that doesn’t mean you shouldn’t try. You should also try selling on neighborhood listserves or local Facebook groups.
Items have been popping up daily on my neighborhood listserve; bread machines, sewing machines, swing sets and outgrown children’s toys were added to the list today. Neighbors are also offering up gift cards at reduced prices before attempting to sell them on eBay.
If you decide to sell locally ask buyers to pay you electronically via Venmo or PayPal. Then place the items outside where buyers can safely pick them up.
Reduce Medical Bills
Between the months of December and February a series of doctors visits and medical tests cost me over $6,000. Thanks to a high deductible insurance plan I was on the hook to pay all of it.
If you have high medical bills and expenses call your medical providers and ask for a long term payment plan. Most offices can break your cost down into ten or twelve smaller payments.
If you are struggling to pay those bills let your providers know that too; sometimes they can lower the bill substantially for you.
Refinance Your Mortgage or Get a HELOC
If you have a decent amount of equity in your home you can apply for a home equity line of credit known as a HELOC.
The interest on home equity lines of credit are definitely lower than your average credit card, but only use HELOCs as a last resort.
Unfortunately, banks can close a line of credit if the value of your home drops. Home prices plummeted during the last recession, which left many homeowners without access to these funds when they desperately needed it.
A better approach may be to refinance your home. A great way to prepare for a recession is by reducing your monthly mortgage payments. Check the interest rates at banks and local credit unions to see if interest rates have dropped since you last refinanced.
Refinancing can decrease your monthly payment significantly. Research rates in your area and use this mortgage refinance calculator to provide a quick snapshot of your adjusted monthly mortgage payment.
If you plan to use either of these options apply before you lose your job. Lenders must verify employment prior to guaranteeing loans of this nature.
There is No Such Thing as Easy Money
Personal finance bloggers and podcasters write and talk a lot about leveraging money. We invest every penny in the stock market and cash out the value of one home to purchase another.
Last fall l I met real estate investors who were buying twenty to thirty investment properties. A number of them told me that housing prices never dip in their area and that renters always pay on time. Similar investors are now running to online boards asking what to do when their renters won’t pay them.
I’ve made similar mistakes myself. In 2005 I bought a house that is still worth hundreds of thousands less than I paid for it. This pandemic is another reminder that there are few guarantees when it comes to your money.
Should you pay off your home or invest in the market? Should you buy a house with only 5% down if you plan to have renters? In this environment we are all left to question our financial decisions.
I’ve spent a good deal of time reflecting on the choices my husband and I made. When times are good it’s easy to stretch ourselves to the limits.
Think carefully about the amount of debt you take on and whether or not it was wise to acquire it. This won’t help you now, but it will lay the groundwork for future decisions.
Prepare For the Worst: Prepare for a Recession
In the best case scenario all of your actions will be unnecessary. You won’t lose your job or struggle to pay your bills. On the other hand if things do go wrong you will be prepared for it.
I was a star employee and a strong saver before the last recession. Despite my preparation my finances and job both took a hit.
Although my husband and I weathered the storm I wish we’d felt more prepared for the recession.