These three steps helped me pay off $300,000 of debt in three years and created mental peace around my money despite an upcoming recession.
In 2008, I was a 23-year-old HR Representative for a Fortune 100 company, flying around the country shutting down offices and laying off employees who, like most people, never imagined what would be the Great Recession.
A man in his fifties in a small office in Columbus, Ohio stared straight at me and said, “I’ve been working at this company probably longer than you’ve been alive. Why do you have a job and I don’t?” I only realized later that was not a personal attack to me, but a response based out of fear of his own stability.
That experience became the foundation for my financial education company’s mission. I wanted to coach people toward financial independence in good times, but especially during a potential recession.
Aside from the loss of income, getting laid off can feel extremely personal and difficult to manage your emotions. It’s important to not only assess the math of your financial plan before a job loss, but the potential impacts to your mental health, too.
Address Your Top Financial Stressors If You Lost Your Income
You don’t need to know all the answers, but to help clear up some of the unknown details, get your biggest worries out of your head and onto paper. They can be technical questions you’d need to ask for expert advice on, or personal questions you need to plan for yourself such as:
- How much will I have to pay for health insurance?
- What are the steps if I need to pull money from my retirement accounts?
- How long can I cover my basic living expenses with my current savings?
- What will be my plan for day care if I’m not working?
- Do I need to refinance any of my current debt?
It’s best to write all the questions you don’t know the answers to, and then narrow down to the top five. Then commit to finding the answers to these questions first before you spiral into analysis paralysis with too many questions.
Not sure what to do? This is a great time to re-educate yourself from reliable, proven sources including financial experts and peers who may have gone through similar situations in the past.
Schedule meetings with your human resources representatives for answers related to your benefits, and review your budget and net worth with a partner to determine your contingency plan.
Taking detailed notes, especially by hand, can help you not only remember the points of what you learn better but, can also help reduce distractions that side-track you as you map out your plan.
Adjust The Timelines On Your Big Financial Goals
According to a recent survey, about 70% of Americans feel stressed about their finances because of inflation, economic uncertainty and rising interest rates. And 58% of Americans are now living paycheck to paycheck.
With a potential recession, you will want to re-evaluate not only the order of your big financial goals. Also consider if timelines need to be paused or extended based not only on current market conditions, but also where you have flexibility to make changes.
For example, if buying a home was one of your current goals, you may choose to wait until the real estate market cools to pay off debt instead. I meet many students who are investing up to the company match of their 401(k), even though they do not have enough saved for an emergency fund, or need to pay off high-interest credit card debt.
For many students I’ve coached after a layoff, losing their job often is even more emotional because it feels like a failure of all their financial goals. A helpful way to reframe your mental approach is by simply adding the word “yet” to your statements as you shift your priorities.
Rather than saying, “I can’t save for retirement,” you can say, “I can’t save for retirement, yet.” This helps remind you that the changes you might need to make in your money goals are temporary, and you can always come back to them once you stabilize your finances again.
Budget For Every Expense You Can Control Before Worrying About What You Can’t
If you start to panic about your income, you can ease your stress by budgeting your expenses for the next month. Aside from your regular monthly bills, here are some costs to consider paying ahead of time or planning for in advance:
- Getting an estimate early from your tax planning professional, so you know how much you’ll owe or get a refund for
- Paying home or car insurance in full for the next quarter or six months to remove it from your monthly expenses
- Scheduling doctor’s appointments while you still have health insurance
- Investing your individual retirement plans to the maximums while you still have the funds
- Paying for children’s education or day care expenses in advance
Having a clear, documented budget for my household expenses and also for my business helped me stay calm during the Covid-19 pandemic, even when my income went down to $0 in my business.
You’ll either realize that you will still be fine, or if your expenses start exceeding what you can afford, you are giving yourself extra time to take some preemptive measures.
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