Tuesday, 5 May 2020

The coronavirus hit America swiftly and severely. In a matter of days, millions found themselves confined to their homes, working remotely, or out of a job completely.

Not only were people concerned about getting sick, they were also worried about how they could financially survive the pandemic.

We still don't have a firm grasp on what the economic fallout from this unprecedented event will be. But most experts agree we are headed for a recession—if we're not in one already. That makes right now an excellent time to take some important steps to improve your overall financial health and recession-proof your finances.

Here are some tips and suggestions for how to prepare for a potential recession.

Boost your savings

For years we've been told how important it is to have an emergency fund. Most financial experts recommend having enough savings to cover at least three months of living expenses. With many Americans living paycheck to paycheck, saving that much money can be nearly impossible.

However, the COVID-19 crisis has made us realize that saving money isn't a luxury, it's a necessity. Even a small amount of savings can help reduce financial stress. With that in mind, if you're able, boosting your savings should become a top priority.

Start by setting up automatic withdrawals from your checking account to a savings account each month. If you're already doing so, consider increasing that amount. In addition, if you have money in a savings accounts, make sure you're earning as much interest as possible.

Increasing your contributions to your company's 401(k) plan can be an efficient way to enhance your savings. Since the recently enacted Coronavirus Aid, Relief, and Economic Security Act (CARES) increased the amount you can borrow from your retirement savings penalty-free, you could access that money in an emergency.

Consider refinancing debt

Interest rates were low before the coronavirus pandemic, but now they're about as low as they can get. With that in mind, you may wish to consider refinancing some of your debt. Not only could you lower your monthly payments, but also reduce the amount of interest you'll pay on long-term loans like mortgages.

The rule of thumb for refinancing your mortgage is if you can lower your rate by one percentage point, it could be worth it. If you can qualify for a pandemic rate, refinancing could be a way to lower your monthly payments and free up some cash you can use to pay down higher-rate debt.

You may also wish to look into consolidating credit cards on to a lower-rate card or paying them off with a personal loan. The goal is to get your debt under control and have a plan for paying it off, which can make you more confident about your financial well-being.

Review your insurance coverage

Insurance can be a straightforward and affordable way to build a financial safety net for you and your family. For starters, you should consider the basic types of insurance you need to protect your assets, such as your home and vehicles. In addition to that, life insurance can provide financial protection for your family in the event of your death.

Similarly, Accidental Death and Dismemberment (AD&D) can offer a financial benefit if you are severely injured or killed in an accident. And, since medical costs later in life could potentially wipe out your hard-earned savings, long-term care insurance could cover the cost of some care while protecting your family's assets.

Check up on your investment strategy

Whether you're invested in the stock market through your 401(k) or your personal portfolio, you're probably aware the stock market was deeply affected by the pandemic, and not in a good way. Extreme volatility can often prompt investors to get money out of the market and into safer investment options.

However, most experts encourage calm and patience, especially if you're not retiring in the next decade. Instead, speak with your financial consultant to make sure your assets are properly allocated to minimize your risk. And don't forget your 401(k). In most cases, account holders can direct how their money is invested, yet less than half of them actively manage their retirement savings. Now's a good time to reevaluate your 401(k) to make sure your retirement funds are wisely invested for long-term success. Consider enlisting the help of a financial professional if you need guidance.

Make the most of your finances

Again, no one knows exactly what will happen with our economy in the coming months. However, taking control of your finances can help you get on more solid financial ground, build a safety net and be in a better position to handle future challenges.

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