We’re definitely living in unchartered waters, with 2020 bringing events that we’ve never seen before. COVID-19 has been a global pandemic that spread so rapidly and essentially shut down the entire world. For months we all just sheltered-in-place, with only essential businesses continuing to operate. This undoubtedly took a toll on the economy and if you’ve been following the stock market, it’s been quite and up and down roller coaster. Regardless of where the stock market stands, there’s a lot of fear right now in the economy of what’s to come in the near future.

I believe we’re only beginning to see the effects of businesses being closed for a few months and that although hopefully the vast majority of the millions unemployed will be brought back, I’m worried that not all will. I’m not saying that we will have a recession or that the economy will slow down, but it’s a good exercise to think through what it looks like if it does, and how you can make sure your money is protected against a recession and think through you can do to actively protect your finances?

Emergency Fund

If you’re an active reader of this site, you’ll probably complain that I bring this up way too often, but I’m not going to miss an opportunity to do so! Having a well stocked emergency fund is a basic requirement of personal finance, no matter how young or old, how rich or poor, how secure in your job or not. This global pandemic and economy slowdown has only reinforced and provided firsthand evidence of this need!

Simply put, you need to have 3-6 months of expenses set aside, in a separate bank account. Why 3-6 months? That’s a good amount of time to weather any time of storm life may throw at you. You’ll hopefully have other savings or investments that you can tap into if it goes beyond 6 months. Why a separate bank account? That way it’s a bit more out of sight, out of mind and it’s also harder for you to get to and be tempted to spend!

If you don’t have one, start one today. Open a new savings account (I recommend High Yield Savings Accounts – typically offered from online banks that have less expenses from physical locations and can offer higher interest. Put aside what you can each paycheck and set a goal of $1,000. From there work up to 1 months worth of expenses, then 3 and then 6!

Start cutting expenses (or have a plan to)

One way to protect yourself and your finances is to make sure you are living within or even under your means. Simply put, do you need to spend as much money as you do? Look at how you can reduce your outgoings by being ruthless with what you need to pay for and limit spending on non-essential items. It’s not something you have to act on, although it might be eye opening how much you spend and you do it anyways, but have an order of things you’d cut if your financial situation worsens.

Doing so will put you one step ahead of having to live on a reduced income should the worst happen and allow you to put money away in a savings fund. A savings fund will help your money grow and also be there in an emergency (see point #1). If you can’t make cuts, look at ways you can generate additional income streams to help you support your income.

Look for different income streams (i.e. a backup plan)

There are two ways to improve your financial standing: cutting expenses or improving income. To improve income, start looking at different income streams and for young professionals not having enough income from stock dividends or rental properties, side hustles are probably where you’ll look for income. Second jobs, working from home in positions such as freelance writing, Virtual Assistant, Social Media Manager, driving for Uber/Lyft, food delivery, dog walking, babysitting are all viable options and many are easy to get started with part-time.

Even if you’re in a good financial position right now, it’s wise to have a bit of a backup plan. Millions of young professionals got laid off in March, April and May and that’s a reality that caught many of us off guard. Come up with your own plan! Even though you’re likely to receive a severance package from your old employer (hopefully) and can rely on government benefits, a backup plan is still wise!

Improve Your Credit Score

We all know that the better your credit score, the more finance options will be open to you. Although hopefully by following the steps outlined here, you won’t need to use your pristine credit score to borrow money to get through this tough time, it’s not a bad idea to be ready. The act of improving your credit score takes paying down debt, not incurring as much new debt and being responsible in maintaining your debt – all of which are actually good financial practices which will improve your personal financial standing which is good overall – even if you’re not looking to take on new debt.

A good rule of thumb is to keep your balance low on credit cards, never use the maximum up and pay it off regularly to help you boost your credit score and keep you in a good position financially. Having low levels of debt will be a weight off your mind should you find yourself in an tough spot, whether through getting laid off, getting sick or getting hurt, through no fault of your own and need the services of a personal injury attorney.

Summary

In conclusion, it can be hard to know precisely how a recession will hit individuals. But taking steps to help you prepare for the worst financially will help you be in a better position to face any issues that come your way and react accordingly!

Disclosure: Some links are affiliate links that earn me a commission.