These three steps helped me pay off $300,000 in debt in three years and created mental peace around my money despite a coming recession.
In 2008, I was a 23-year-old human resources representative for a Fortune 100 company, traveling the country closing offices and laying off employees who, like most people, had never imagined what the Great Recession.
A middle-aged man in a small office in Columbus, Ohio looked me straight in the eye and said, “I’ve been 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 this was not a personal attack on me, but a response based on fear of his own stability.
This experience became the foundation of my financial education business mission. I wanted to guide people towards financial independence in good times, but especially during a potential recession.
Aside from the loss of income, being laid off can feel extremely personal and difficult to manage your emotions. It is important not only to assess the calculations of your financial plan before a job loss, but also the potential impacts on your mental health.
Address your main financial stressors if you have lost your income
You don’t need to know all the answers, but to help clear up some unknown details, get your biggest worries out of your head and put them on paper. These may be technical matters that you would need to seek expert advice on or personal matters that you need to plan for yourself, such as:
- How much do I have to pay for health insurance?
- What are the steps if I need to withdraw money from my retirement accounts?
- How long can I cover my basic living expenses with my current savings?
- What will my care plan be if I am not working?
- Should I refinance part of my current debt?
It’s best to write down all the questions you don’t know the answers to, and then limit yourself to the first five. Then commit to finding the answers to those questions before you sink into analysis paralysis with too many questions.
You do not know what to do ? This is a great time to re-educate yourself from trusted and proven sources, including financial experts and peers who may have gone through similar situations in the past.
Schedule meetings with your human resources representatives to get 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 not only help you better remember the points of what you learn, but can also help reduce the distractions that push you aside as you make your plan.
Adjust the timelines of your big financial goals
According to a recent survey, about 70% of Americans feel stressed about their finances due to 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 reassess not only the order of your big financial goals. Also consider whether deadlines should be suspended or extended based not only on current market conditions, but also when you have the opportunity to make changes.
For example, if buying a house was one of your current goals, you might choose to wait until the housing market cools down to pay off your debts. I meet many college students who invest up to the amount of business matching their 401(k), even if they don’t have enough savings for an emergency fund or need to pay off a debt of high interest credit card.
For many students I have coached after a layoff, losing their job is often even more emotional because it feels like a failure of all their financial goals. A helpful way to reframe your mental approach is to simply add the word “again” to your statements when changing your priorities.
Rather than saying “I can’t save for retirement”, you can say “I can’t save for retirement yet”. This helps you remember that any changes you may need to make to your financial 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. Besides your regular monthly bills, here are some costs to consider paying up front or planning ahead:
- Quickly get an estimate from your tax planning professional, so you know how much you’ll owe or get a refund for
- Paying off all home or auto insurance for the next quarter or six months to remove it from your monthly expenses
- Schedule doctor appointments while you still have health insurance
- Maximize your individual retirement plans while you still have funds
- Prepay education or childcare costs
Having a clear and documented budget for my household expenses and also for my business helped me stay calm during the Covid-19 pandemic, even when my income dropped to $0 in my business.
Either you will realize that everything will be fine, or if your expenses start to exceed what you can afford, you give yourself more time to take preventative measures.