Especially for college students or recent graduates, a recession like this can be hard to handle - let alone businesses being forced to shut down. The good news is that interns or individuals working at a low wage rate can still find a way to deal with the uncertainty that COVID-19 brings. In today's article, I am going to walk you through how to prepare for the next economic downturn.
Like every financial planner will tell you, you have to tell your money where you want it to go. Every dollar is supposed to have a name on where it is to be allocated. Start with your income at the top of the budget. Then, list all of your fixed expenses first. Next, list all of your variable expenses after. These will be things like eating out, entertainment, and really just any consumer spending. If you are an owner of a business, handling your finances now before the crisis potentially gets worse is an urgent necessity. See what loans your company qualifies and consider going that direction rather than letting employees go and losing revenue. If you are an unpaid intern, excel in your job now more than ever! When the opportunity arises, ask your manager what open positions you could fill, even if it’s part time, for you to gain some cash inflow and begin the budgeting process.
It's basic financial advice to have a $1,000 emergency fund set aside just in case an emergency arises. This could be used for an immediate layoff, a car accident, etc. The whole goal of this somewhat small emergency fund is to give you peace of mind when bad things arise. You know you are going to have money to fix it and that it is going to be a short term problem.
Next, save up at least three months of living expenses. This is to help you through times when you are jobless. For me personally, I would recommend saving more than three months if you work in an industry where the jobs aren't that plentiful and are harder to come by. Also, don't be conservative with your estimates. It's better to have more money stockpiled away than it is to barely scrape by when you finally do end up needing. it. Many interns and even low wage workers should seriously consider a second job they can work online to help toward hitting that goal.
You should be saving at least 15% of your gross pay. I would first allocate this money to my emergency fund. After that, I would save up the 3-6 months' worth of savings. After that, you can pretty much do whatever with it. You could save for a car, a downpayment on a house, or even invest the extra money. The choice is yours once all of your debt is paid and your emergency funds are funded.
No one likes being indebted, especially when the debt carries a hefty interest rate. Dave Ramsey calls this the debt snowball. This is when you pay off the debt with the highest interest rate first. For example, you would probably pay off your credit cards first, then a personal loan, then your student loans, and finally your mortgage. Thankfully, interest on student loans have put on hold for the time being, giving college students and interns a break in that department. This is a great time to take advantage of paying off other debts! Also, try as best as you can to maintain a great credit score. This will qualify you for good loans in the future.
Finally, once you have the rest of your finances in order, it is time to invest! Contribute to your tax advantaged accounts first. For example, max out your Roth IRA and contribute up to the match in your 401k every year. After that, you can invest in taxable accounts. Even in these uncertain times, you can keep your future secure by staying invested.
If you follow all of the steps above, you will definitely be prepared for the next crisis or economic downturn.
Disclaimer: The opinion of Insercorp Water Cooler Bloggers are of their own and do not reflect the official position(s) of Insercorp LTD.