No one likes to think about recessions. They can range from unsettling to completely terrifying depending on your financial and job situation. But when you couple a economic worries with the current anxiety about COVID-19, things get a whole lot scarier. If you are still earning a paycheck, but are starting to realize that your personal economy isn’t as strong as you would like, read on for 6 things you can do to prepare your finances for COVID-19, even if everything else in your life seems out of control.
Check your monthly bills
One of the best and fastest ways to make yourself feel as if you have more control over things is to lower your monthly bills. I know what you are thinking: “Dude, we’re in a lockdown, I am NOT getting rid of Netflix to save $20 a month.” But what if you could lower your bills without getting rid of ANYTHING? A few years ago, I decided to check all of my monthly payments, even the ones I didn’t want to get rid of. It didn’t take more than a couple of hours, and I lowered my monthly bills by $50 without cancelling a single service. Add to that some of those “free trials” that I had forgotten to cancel before they started charging me, and I lowered my monthly bills by another $100 on services I didn’t even realize I was paying for!
Here’s the big thing. Even though it seems like a drag, you need to call EVERY service you pay for monthly. When I did this for the first time after my husband and I were married, I found out we were still subscribed to the DVD-by-mail service from Netflix. We loved Netflix, but hadn’t seen those DVDs in years. I found them, sent them back, and cancelled that part of the subscription. It only saved us $12/month. But when you add it up, we had probably spent over $100 for those 2 DVDs that we never. even. watched.
If going through your bills sounds like a great idea, but you don’t know where to start, I’ve totally got your back. I’ve created a Free 5 Day Found Money Challenge. It will take you step by step to help you find money you may not even realize you are spending, including word-for-word scripts to request special offers and lower your bills. What would it mean to you to pay $150 LESS per month for things you totally don’t even realize you are paying for? So click here if you are ready to find some money.
Create an emergency fund
Now that we’ve got you a little bit of room in the monthly budget, let’s move on to step 2. The most important thing that will help the average person weather a financial crisis is an emergency fund. However, an astonishing number of people don’t have any money in savings at all. So if you’re in that boat, you are not alone. Knowing you’re not the only one isn’t going to pay many bills, though, so let’s change that fast. If you’ve started lowering your bills with the 5 Day Found Money Challenge, you’re in a great place. Take the money you used to be spending, and start – or add to – your savings.
By opening a bank account at a totally separate bank
Maybe you have the best intentions to do this. Maybe you have even tried before and the money just seems to evaporate. If so, here is the step you’re missing. This money can’t be at your normal bank. You need to open a totally new account at a totally new bank.
“Why? Why would I do that?” you’re thinking. “That makes it such a hassle to get my money out.” Yes, folks. We have a winner. That is exactly the point. This is supposed to be where you KEEP money, emphasis on the KEEP. We don’t want it to be easy to get to. We want it to be possible to get to it, but definitely not easy.
Now that we’ve got that cleared up, here are the details. It can be a savings or a checking account, but it should be a FREE account. There are lots of no-frills accounts where you can just park money for free. As a matter of fact, a lot of banks will actually pay to to open an account, especially if you have some money to deposit when you open it. If you want to take the time to find a place where you can earn a couple hundred dollars for opening account, check out this link. Just be sure to read the fine print. And again, make sure that this new account isn’t costing you any of that hard earned money you just found.
Now figure out how much money you want to put aside each month, and set up an automatic transfer. This is the way my husband and I saved over $40,000 in a year. When I went back to teaching full time, I set up a separate account at a new bank. Then I had my ENTIRE paycheck deposited there. We never saw that money, so it didn’t get spent. And since we were used to living on his salary, we didn’t even notice. But that never would have happened if my paycheck had touched our joint account. It had to be separate.
How much should I save?
Honestly, as much as you can. Most experts recommend that a fully-funded emergency fund should be 3-6 months worth of expenses. If you’re starting from scratch it’s going to take quite a while to get there, so for now, get enough that you can sleep at night. Unless you have reason to believe you or your partner are going to lose your job, I would say no more than about 2 months expenses if you still have credit card debt.
Why not as much as possible? That’s a great question. The bottom line is no one can predict the future. But if you have high interest credit card debt, you are paying HUGE amounts of money in interest alone. So you don’t want to be sitting on a ton of cash at the same time you are paying 25% interest on credit cards.
Finding the right balance
One way around this Catch-22 is to set a certain amount for a starter emergency fund, and then switch to paying off debt. When all debt is covered, then you switch back and finish up the emergency fund. For me, I would have a lot of trouble sleeping at night if I didn’t have at least one month’s worth of expenses saved up. So maybe the logical thing to do is to focus on saving a one-month emergency fund, then paying off one credit card, then saving another month, and so on.
If you have read my series on Dave Ramsey’s Baby Steps, you’ll realize that this is contradicting his advice to save only $1000 and then pay off ALL debt before finishing the emergency fund. But there is a reason I don’t like that advice at this exact point in time. There is so much uncertainty right now. Nobody can predict what the next week will bring, much less the next month or even the next 2 months. In times of uncertainty, cash is king.
For example, what if someone in your family gets sick and racks up huge medical bills? Cash gives you options. So let’s get some options, in the bank, OK?
Pay off debt
OK, so you have decided to get an emergency fund saved up. And you’ve chosen an amount to start with, one that’s enough to let you sleep at night, but not take 6 months to save up. Now it’s time to kick the debt pay off into high gear. For this, definitely start with your smallest debt. Why? Because every debt that you pay off is one less payment you’ll have if you get laid off. Even a reduction of $50/month in minimum payments can reduce the stress and make the emergency fund go a little further.
So this is what you do. Make minimum payments on everything but your smallest debt, and pound that sucker. Pay it off as quickly as you possibly can. Put every extra penny toward paying off that first debt. When the littlest debt is paid off, take that minimum payment, add it to the payment on the 2nd littlest, and pound that one.
Once you’ve paid off a few debts, you might want to re-assess. Does your job seem stable, or is there trouble on the horizon? If it seems stable, you might want to stay the course. But if there is talk of a RIF at work, or if your partner’s job seems shaky, you might want to increase the emergency fund a little more before you pay off any more debt.
Create a side hustle – or two
It sounds crazy to do when you can’t leave your house, but there are always ways to make money if you keep your eyes open. They range from a few extra bucks to over $2000 a month. Some will pay off right away and others will take time to ramp up.
For a little extra money, try doing surveys online. If you want to make some serious cash think about what skills you already have and how you can make money with those. If you’d like to get the real scoop on VIPKID, you can check out my interview with a friend of mine here. She’s been doing VIPKID for almost a year and it really works for her. Another friend has built a successful indexing business and earns a full-time income from it. You can read more about that one in this blog post.
The best thing about a side hustle is that this it goes hand in hand with the others and will help them to go a lot faster if you do it right. Ay extra money you make gives you more money to put toward your emergency fund or your debt. The important thing here is not to spend much money setting it up. Times like these bring scammers out of the woodwork, so if somebody wants you to pay for the chance to make money, do some serious research before plunking down any of your money.
There is one SUPER important thing to remember here, though. Any money you make from a side hustle might not have taxes withheld, especially if it is a small business you start on your own. Make sure to put about 25% of that money back so Uncle Sam doesn’t surprise you with a big tax bill next April.
Update your skills
If you feel like your job isn’t as secure as you’d like it to be, getting a few new skills under your belt might be just as important as income. Focus on skills that would make you more valuable in your current job or more marketable if you needed to go job hunting. Computer skills are always a good bet, but if you are almost proficient in a foreign language, that might be a good choice, too.
Again, spending an arm and a leg isn’t a good choice. But you can get an absolute TON of learning for free online. Check out this list of the 10 best sites for FREE learning. Or this one for specific IT courses.
Choose and implement 1 new frugal habit
One of the things that trips a lot of us up when we want to reduce spending is feeling like we have to rein it all in at once. We rush in, slash like crazy, and then give it up after a week and a half because it’s just too overwhelming.
Let’s not do that, K? Instead, pick one item, JUST ONE in which you could make some cuts. Then create a plan. If you have been engaging in a lot of – um retail therapy – cutting that out would be a huge one. Maybe you’re ordering take out, but have plenty of time to cook now that you’re at home more. How about learning just 2 new recipes? Or if you’re already comfortable in the kitchen, maybe try your hand at freezer meals so you can avoid expensive take out when this is all over.
Again, don’t try to do it all. Choose one thing. Just one. And do it until it becomes easy.
Again, I’m sure you have a LOT more ways you could cut expenses, but pace yourself. This ain’t no sprint. It’s a marathon, Honey! Give yourself time to really solidify one frugal habit before you rush into another one. My suggestion would be to aim for no more than one new money-saving habit every 2-4 weeks. You want it to become so routine that it doesn’t takes almost no willpower at all to continue it. That way, when you add another habit, the first one doesn’t fall to the side.
Remember, you got this!