The U.S. economy could dramatically accelerate this year thanks to vaccines and massive government stimulus, but your wallet might not feel the difference for a while — especially if you were one of more than 23 million workers who lost their job during the COVID-19 pandemic.
Employers have already started hiring workers back, a sign that the coronavirus-induced recession might technically be over, simply because the U.S. financial system isn’t in as harsh of shape as it once was. Official word, however, would have to come from the National Bureau of Economic Research (NBER) Business Cycle Dating Committee.
Yet, the job recovery is happening nowhere near as fast as the initial job destruction. Over the past six months, employers have been adding back about 365,000 positions on average each month, a pace that would require two more years before all of the 22.2 million job losses are recovered.
All of that’s to say, preparing your wallet for harsh economic times is an essential part of your financial health, downturn or not. As many Americans recover from the worst downturn in generations, here are seven tips to help make sure your finances are recession-proof, as recommended by experts.
1. Pay down debt
It’s crucial that you pay down any outstanding debt — more specifically, high-cost debt, such as your credit card balance — to create some breathing room in your budget.
As the coronavirus has demonstrated, economic downturns can often lead to job loss. If you’re worried about job security, paying off your obligations might bring you more peace of mind.
Prioritize credit card debt, then turn to other types of loans, such as mortgages or auto loans. Student loans, however, have more favorable provisions, which makes paying them off less of an urgency, says Greg McBride, CFA, Bankrate chief financial analyst.
Even if you’re not worried about losing your job in a downturn, it’s still good financial practice. A March 2019 Bankrate survey found that 13 percent of Americans aren’t saving more because of the amount of debt that they owe.
“Regardless of where we are in a market cycle, prioritize eliminating high-interest rate debt no matter what,” says Lauren Anastasio, CFP, a wealth adviser at SoFi, a personal finance company. “Being in a position where you’ve eliminated those types of high-cost obligations allows you to better prepare for other things financially. The more you’re able to put aside for saving and the less debt you have, it’s going to be available to you in case of an emergency.”