my two cents

Is There a Good Money Plan for a Recession?

Photo: Lambert/Getty Images

It’s surreal to be living in the middle of a worst-case scenario. Just think: From now on, financial advisers will say, “It’s important to have an emergency fund, just in case there’s another global pandemic, you know?” And whoever’s listening will nod, like it’s a totally normal thing to plan for.

Of course, it was impossible to be ready for this, financially or otherwise. And obviously, having money saved up helps in pretty much any hardship. But if you don’t, like most Americans, it’s too late to beat yourself up about it. Instead, it’s time to focus on what you can control.

Unemployment is currently spiking faster than it ever did during the Great Recession, and those numbers will only get worse. As I type this, one of my friends is negotiating her salary cut at the nonprofit where she works (she’s one of the lucky ones — half her colleagues are getting laid off). Another owns a small catering business and doesn’t know when she’ll get her next paycheck (or be able to pay her staff). And what about the billions of other people stuck at home in an employment gray zone, unproductive and stressed because they aren’t sure if they’ll have an office to go back to when this is over?

I don’t know how to talk about any of this stuff, really. We don’t know how long the coronavirus will last, or how badly it will damage the economy, or what the recovery will look like. But here are the best answers I can give to the questions I’ve gotten this week, with help from financial veterans who’ve weathered big downturns before. It’s scary out there. Be good to yourselves.

I don’t have any savings. What should I do?

So, don’t panic, but all the experts I spoke to said that now is the time to have some cash on hand — which is not a great thing to hear if you don’t. But one of the few good things about being stuck at home is that your spending options are limited. You’re not going to wake up this Sunday morning wondering how you managed to burn through $243 on dinner, drinks, and an Uber the night before, for instance.

“Take this time to redirect the money that you’re usually spending on life and put it towards good causes — savings, a credit-card bill, or student loans,” says Kristin O’Keeffe Merrick, a financial adviser at O’Keeffe Financial Partners. In other words, approach this as a spending quarantine. Financial distancing, if you will.

This is a chance to make long-term good habits, too. Better yet, get the internet to make them for you. I recommend automating deposits into a savings account before you have the chance to spend that money elsewhere. My favorite app for this is Digit, which pulls tiny amounts from your checking account when you won’t notice. Or you could just set up regular transfers in small increments. Since your budget is relatively simple right now — food, internet, housing, Netflix, basically whatever you normally need to run your household — culling “fun” stuff should be relatively painless. And remember, spending money is one of the few things that is in your control right now, so taking initiative will be comforting.

Here’s what you should not do: put stuff on your credit card if you can afford to pay for it outright. Research shows that people have a tendency to do this when they’re stressed about money, but it winds up costing them extra in the long term when they have to pay interest on those bills later. Alternatively, if your income dries up and you do have some savings, now is the time to tap into them. This is what emergency funds are for!

Should I stop putting money in my 401(k), since the market is so bad?

No! Definitely not. In fact, “buy low, sell high” would dictate that this is a great time to invest even more. But only do so if you won’t need the cash for a while. “The general rule is that investments should have a long-term time horizon. Don’t invest money that you’ll need to use within at least five to seven years,” says Pari Hashemi Magura, a Philadelphia-based financial adviser. “You should not try to time it, or expect to be positive in a year, because it just doesn’t work like that.”

One caveat: If you currently make contributions to a 401(k) or retirement account but have no cash savings at all, you might consider skipping those contributions for a month or two and using that money to seed your emergency fund instead. Let me be clear: This is not ideal! In general, it’s much better to put money in your 401(k) than to keep it lying around in cash. But these are extraordinary times, and if you’ve been caught flat-footed without anything to fall back on, it’s important that you find a way to get some cash reserves as quickly as possible.

I think I’m okay for now, financially, but I have no idea how bad this is going to get. How worried should I be, and is there anything else I can do?

Everyone I spoke to reiterated that if you’re already observing generally good financial habits, stay the course. Which is to say: Keep putting money in your retirement portfolio and make sure it’s diverse. Keep paying your bills. Keep saving extra cash. And try to put this all in perspective. Historically, there have been about 17 recessions in the history of the United States, and experts are notoriously bad at predicting them. We don’t know what this recovery will look like yet, but we do know that people who save and invest consistently tend to be better off than those who react suddenly to market swings.

My work has dried up, and I know the government has passed legislation that’s supposed to help. What am I eligible for?

A number of states, like New York and California, have provisions for people who can’t work for coronavirus-related reasons, so you may be able to get some support — up to two-thirds of your normal paycheck, in some cases. Check with your state’s department of labor for more information. Moreover, the federal government’s new paid-leave bill covers workers who are sick, caring for a loved one, or taking care of kids because schools are closed; find out if you’re eligible here. These benefits may not apply to you, but I recommend doing the research.

The federal government’s giant new stimulus bill, passed last night, should also provide some relief. It’ll boost standard weekly unemployment benefits by $600 per week for the next four months, and expand unemployment insurance to people who don’t normally qualify for it — like freelancers, independent contractors, and furloughed workers. As you may have heard, it will also provide a one-time $1,200 check within the next few weeks to every American who makes less than $75,000 per year (for couples, it’s $150,000 a year), plus $500 for every dependent child. (Americans who earn more than $75K a year will get smaller checks, and those who make more than $99K won’t get anything.) That won’t solve all your problems, but it should help.

I heard that there’s a temporary hold on student-loan interest. What does that mean for my student-loan bills?

The government temporarily waived all interest on federal student loans for 60 days starting March 13. The waiver is automatic, so you don’t need to do anything — your loans just won’t accrue interest for the next two months. If you were already behind on your payments by more than 31 days, then you’ll automatically go into forbearance (meaning your bills will be suspended, with no interest) for the same 60-day period. However! And this is very important: You still need to pay interest on your private student loans. If you’re having trouble, call your loan provider and see if you can get a break. Lenders are under a lot of pressure from the government to go easy on people right now, and getting a lot of money to do so. They should listen to you.

I don’t think I’ll be able to pay my credit-card bill this month. What should I do?

Call your credit-card company and ask for a reprieve. The government has asked banks to be lenient toward borrowers right now; some credit-card companies have come right out and said they’d allow people to skip payments, interest and penalty free (you can read more about that here). While you’re at it, see if they’ll lower your interest rate and/or waive any annual fees.

And here’s a long list of banks currently offering special assistance, ranging from loan deferrals to free financial counseling.

What if I can’t pay my rent?

The same goes. Many state and federal authorities have issued moratoriums on evictions for the next few months, so you won’t get kicked out, at least for now. But you should still talk to your landlord about it. They may be willing to lower your rent or help you come up with a plan. And even if they can’t, honesty is better than sitting around in an apartment you can’t afford, waiting for someone to notice that your check is late. Remember: For better or for worse, you’re in very good company right now.

Is There A Good Money Plan Right Now?