As we ride out the effects of COVID-19, it’s safe to say that our first thoughts are all about our health (and the health of our loved ones). But after that, the focus quickly turns to the economy, and our own personal bank accounts. To help us navigate, we checked in with Lauren Anastasio and Brian Walsh, both certified financial planners at SoFi, to find out the best ways to recession-proof our cash.
1. First Things First, Stay Calm
Yes, the markets—and the economic outlook—feel scary. But before you do anything, you need to sit down and take a deep breath, Anastasio explains. “The uncertainty of our current day-to-day lives may be stressful, but for most of us, there is no need to panic,” she says. “So, before you look at any of your accounts or start making financial decisions—or changes—check your mindset. Calmness counts for a lot.”
2. Next, Review Your Cash and Debt Balances
Consider it ripping off the Band-Aid. Though you may notice a double-digit dip on long-term investments, keep in mind that this is money that’s meant to stay invested for multiple decades. “The volatility we’re experiencing for a few months should not change your long-term investment strategy,” says Anastasio. Instead, focus on your cash flow and debts. Now is the time to review your monthly needs and obligations to ensure you’re prepared for any income uncertainties. (In other words, total your checking and savings, but also your debts.)
3. But Don’t Check Them Daily
The biggest mistake young investors can make right now is to panic. “Volatility is a normal part of investing and, over the last 70 years, the S&P 500 has experienced a 10 percent decline once per year on average,” Walsh explains. “Despite those declines, long-term returns of the S&P 500 have exceeded bonds or cash.” His recommendation: As long as you have a solid long-term investment strategy in place, it’s OK to mitigate anxiety by letting things—say, your 401(k)—run on autopilot.
4. Assess Your Budget
If you haven’t reviewed your budget recently, now is the time to dig in—especially as you think through your monthly expenses and any adjustments you’ll need to make in comparison to what you’re earning. “If there have been any income changes, figure out if you need to make cuts to your discretionary spending or fixed living expenses as you ride this out,” says Anastasio. After all, goal-oriented thinking is the best defense against short-term losses, she explains. “Getting your money—and spending—right during this time means staying the course and having the assurance that, in the long run, markets tend to increase.”
5. Do What You Can to Pay Down High-Interest Debt
This should always be a top priority, regardless of where we are in an economic cycle. But it becomes extra important when facing a possible recession where employment is likely to fall, says Anastasio. (That can impact everything from interest rates to lending rules.)
6. Put Any Surplus to Building Up an Emergency Fund
In a perfect world, you should have three months’ worth of fixed expenses set aside. This is the best way to make sure you don’t have to rely on credit cards to make ends meet, especially during uncertain times, says Walsh. Even if you can only contribute a small amount per week, it builds up over time and can help you cover unanticipated financial issues without having to disrupt your ability to cover your normal living expenses.
7. Postpone Any Large, Unnecessary Purchases
Those kitchen countertops you were planning to replace? It’s probably best to put those plans on pause for now. “For items you would be paying for outright, you’ll likely be happier knowing you have the cash on-had,” Anastasio explains. As for anything that would have to be financed? Again, it goes back to your cash flow. “The less bills, the better, should the economy take a turn for the worse.”
8. Be Strategic About How You Use Any Government Support
As you may already be familiar, some Americans can expect to receive up to $1,200 as part of the recently passed CARES Act. But if you do receive a stimulus check, what is the best way to use these funds? Walsh says, it really depends on your financial situation. “If you have a solid financial foundation—meaning a proper emergency fund and all your bad debt is paid off—and your income has not been directly impacted by COVID-19, then you have the flexibility to save, invest or spend these funds. But if you don’t, these funds should cover essential expenses, be saved to your emergency fund or used to pay down bad debt like credit cards,” Walsh explains.
9. The Same Rules Apply to Deferring Your Mortgage Payment or Rent
Individuals directly impacted by COVID-19 may need to explore forbearance options with debt providers, says Walsh. “Options will vary by lender, so it’s important to understand specifically what’s available to you. In light of the current situation, institutions may be willing to work with their customers,” he adds. For example, Chase is offering a 90-day deferment where interest will accrue, but late fees won’t be charged (and missed payments won’t be reported to your credit bureau during that time). Citibank is offering a similar 90-day forbearance relief option. Check with the bank (or your landlord) to find out exactly what’s available to you. Just keep in mind that, in most cases, the outstanding balance will be due at the end of the 90-day period. (There are other ways you can pay it back—say, adding the paused payments to the end of your mortgage—but that will extend the life of your loan.)