With the recent COVID-19 outbreak, people all over the world are confined within their homes, in fear of a highly contagious virus that has already spun a pandemic. However, the second concern many of us have are the economic consequences of this situation.
First of all, government regulations are about keeping people safe and stopping the spread of the virus that could collapse the Health system worldwide. With this, businesses are closed, workers have been furloughed or are currently unemployed, and many markets have taken huge hits, such as Tourism, Air Travel, Entertainment and most of all, medium and small businesses.
As a consequence, economists and financial specialists have forecasted a recession for the near future, if it is not already in place. A recession is a decline in gross domestic product (GDP) for two consecutive quarters, and because this situation is developing quickly, it has been difficult to predict what is in stall for us in the next few months.
Now, what is a reality for many of us individually is unemployment, insecurity for our business, unpaid suppliers, bank loans, etcetera. Therefore, we must prepare ourselves for the looming future, since the outlook may still be grim.
These are a few recommendations that can help you be better equipped to deal with a recession:
- Re-evaluate your spending habits
An important first step, is coming to a full understanding of our spending habits. Since we are spending most of our time at home, our habits immediately change, and we have to take the opportunity to look at our expenses from a different perspective.
First, some things have automatically changed, for example, we are spending less money on transportation or gas and more money on our electricity and water bills from spending more time at home. Furthermore, all our entertainment budget has shifted from going to the movies, sports games or concerts, to subscribing to more streaming platforms or buying more board games, videogames, etc.
This way, you can see the unnecessary things you were spending at, and then, will be able to cut back on those things and maybe start adding the same amounts to an emergency fund -very necessary in times of recession.
If your job feels uncertain, your business is shaking or you are struggling to earn money, the first thing you will have to do, is see where you can make savings and define which are your priorities.
- Cut back on expenses
Now that we have seen where we are wasting our money, it is time to completely cut those expenses (at least until the crisis passes).
Some easy ways to do that can be switching to a cheaper cell phone plan, ask for lower insurance premiums for your car and house or choose between cable or streaming services. You can also try to lower your bills by having a more careful use of the water and electricity in your home.
Unplug all electronics when they are not in use, take advantage of the sunlight and avoid charging your phone all night. On the other hand, try to have shorter showers and not to leave the water tap open while brushing your teeth, hands, or showering. You can also check the https://www.lowermybills.com/ website for more help with your bills.
Furthermore, even though your eating out habits may be over, think about how much money you are spending on take out or home delivery services. A better and healthier alternative is to learn how to cook and experiment with different ingredients and recipes, it is a great opportunity to make the most of your time at home and to learn or improve a new skill – while saving money. How great is that?
Finally, focus on low cost entertainment or family time. When we have lots of free time confined between four walls, our decision-making can be affected, specially when children are around. We may be inclined to buy every single whim to keep your children entertained, without thinking of your credit card bills.
Try to innovate with things you have around your house, promote the use of creativity in your children, surf the web for fun ideas to do and just take advantage of the time you get to spend with your family. All of this does not require any money, and it will improve your family relations.
- Do not panic
The first thing many people start to think is to seize the moment, and live as best as you can now, etc. However, by doing so, we may be sacrificing our long-term security.
I know it is easy to think that the coronavirus crisis will never end, but it will. And we should be spending and taking care of our money for the future.
To highlight, these are the most important things we should all be doing whether we still have our jobs or not:
- First and foremost, you want to build up your emergency fund as soon as possible. The way to do that is to spend less money than you make and put the difference in a savings account.
Take the money you usually spent on gas, eating out, entertainment, etc. And put it all into your emergency fund (which if you don’t have one already, it is the perfect time to start) that should ideally make up for at least 3 months of your essential expenses, so you can survive in a crisis or world pandemic.
- Avoid making big -or small- purchases for the time being, since the last thing you want is to hurt the finances that will come to haunt you in the future. Unless you are sitting in piles of cash, you do not want to take on new debt obligations, specially in times of uncertainty like these.
The coronavirus crisis will eventually pass, and there will still be deals on those big-ticket items on your list when this is all over.
- If you still have job security, try paying as much of your debt as soon as possible. And take advantage of the release measures from the government of your country. Many banks, loaners, tenants, etc. are taking into account the world financial situation and you will probably be able to reach an agreement with them to help you release some of your obligations at least until the pandemic ceases.