How To Prepare For The Looming Economic Disruption
There is value in being financially prepared come what may
On the weekend the initial lockdown was announced, my anxiety level rose but not towards coronavirus itself. My concern? The after effects of the health crisis on the economy. No, srsly. I had to check my funds; am I liquid enough? Will my family and I be able to survive? For how long???
The disease quickly became a threat to one’s health and job security. I might not have a degree in economics, but it doesn’t take one to see that the abnormality in supply and demand, as well as prolonged lockdowns, will result in economic disruption. One that will ultimately force businesses to scale back, making it harder for them, especially small businesses, to recover (if they can at all), and then causing a large part of the total workforce to lose their jobs. (Worst case scenario; hoping for a better one.)
Though as Mohamed A. El-Erian explained in his article for Foreign Affairs, “If it hadn’t been the new coronavirus, something else would have triggered (the decline).” That’s just how the economic cycle works, the expert said; there will be ups and downs, recession after periods of growth.
In any case, I don’t mean to create or sow even more panic. No one can accurately predict if and when all this will end or when the downturn will happen. But there is value in being financially prepared come what may, amirite? We looked to economic experts and listed down tips they all had in common to help lessen the blow:
Time To Pay Off That Debt
In times of financial crisis, you’ll need some breathing room to spend for what’s necessary. Adebola Alabi, author, motivational speaker and life coach, shared in an article for Medium just how: “List your debts from smallest to largest and start paying them off.”
Get Started On An Emergency Fund
Apart from savings, which should ideally be used for future investments or the future in general, you’ll also need an emergency fund. Don’t have it? There’s no better time than now to start building one. The idea behind it is to allow you to take care of your basic needs in cases of an emergency, like job loss.
Regardless of how much you earn, there should be a fair amount to put aside (3 to 6 months of your monthly income per Alabi, especially if your financial obligations are limited to paying your credit dues). I know we all like to treat ourselves, but living paycheck to paycheck is not living. Which leads to the next point…
Edit Down Those Expenses—Ruthlessly
It’s good practice to review what you spend on from time to time to understand how much more you can save. Check your subscriptions, your bills, your daily spend; such exercise will help you spot items you might be paying too much for and can get the same value from something or somewhere else.
Take streaming services for example, do you need or use all of them at the same time? I used to be subscribed to three services; Netflix, DisneyLife and Spotify. It might not sound a lot when you look at it individually or monthly, but small things do pile up. And because I share the subscription with my family, it makes sense to pay for one that we all use: Netflix. And honestly, I don’t mind the Spotify ads, but that’s just me.
Budget Is Key
In any business, big or small, expenses for the year ahead are always planned at least six months in advance and are categorized accordingly. This keeps businesses on track financially and prevents overspending.
You can do a similar exercise for you or your household. Plan your finances on a monthly basis and organize according to essentials and nice to haves. You can call it whatever you want, really. But the idea is, essentials would be for food, utilities, anything that you’ll need to survive. Nice to haves are well, nice to have or little luxuries, like vacations, those subscriptions mentioned above, etc. You can always edit down from here as the need arises.
More On Budget: The 50/30/20 Rule
According to Elizabeth Warren, the basic rule for budgeting is to divide net income (use Neuvoo’s income tax calculator to help compute for your income after taxes) into three categories: 50% on needs, 30% on wants and 20% on savings. Sample below:
Do The ~Side~ Hustle
Let’s save the passive income talk for later and focus on diversifying your income via side hustles. Use your God-given talents to offer services to other people and make money. Websites like Fiverr, a marketplace for businesses, allow you to monetize your skills in graphic design, digital marketing, writing, video and animation and more. Not your calling? How about starting your own meal delivery service? We hear virtual restaurants and ghost kitchens are going to be big (or be bigger) in the future.
The point is to create opportunities for yourself (and later, others should your side hustle grow into a business).
We live in uncertain times but even in uncertainty, there’s a way to take back control (and I don’t mean panic-buying): to prepare. Build an emergency fund, cut down expenses, find ways to make money outside of your main job.
Keep in mind, too, that all this is temporary. There will be better days ahead, even if it takes a while.
Words Money Man
Art Alexandra Lara