Best Practices

How to Protect Yourself Financially From the Impact of the Coronavirus

by Jim Hughes   March 30, 2020

The novel COVID-19 continues to have an impact on communities across the United States, as the number of diagnosed cases in the country surpassing 15,000 at the time of publication. In addition to its growing mortality impact, the virus has also had some financial ramifications that may point to a recession. Recessions are an inevitable part of the economy, but while there are many aspects of an economic downturn that cannot be controlled or predicted, there are ways to protect yourself financially and to ensure that you are monetarily enabled to handle a fiscal slump.

How the Corona Virus may affect the economy.

Is the Coronavirus Creating a Financial Crisis?

As more consumers opt to and are further mandated to stay home, restaurant and retail sales are continually being impacted by the novel coronavirus.

While the larger economic toll has been limited so far, there are already signs of a downward turn within specific industries; visitors to the retail cooperation Walmart slowed by 16.5% in the last week of February, according to consumer data firm Cuebiq.

Further, the virus could have small, but negative impacts on unemployment and job loss. Experts predict that the current unemployment rate at 3.5% could go up to 3.8% or even 4.1%

The bottom line is that the virus is likely to cut growth by one or two percentage points over the next few months.

Coronavirus Impacts on the Stock Market

If the markets fall, investors will cut back on spending and the economy will slow. And most financial experts predict the coronavirus will most-likely cause a financial recession. In anticipation of such impact, the Federal Reserve has slashed interest rates to near zero, in addition to stating that it would “buy $700 billion in Treasury and mortgage bonds.” Such aggressive actions point to the fact the Fed is predicting a sharp downward turn in the markets.

But most financial experts maintain that the travel, tourism, and manufacturing sectors will be the most impacted by the coronavirus. “It will shave 0.45 percentage points off Q1 U.S. GDP,” says Ryan Sweet, Director of Real-Time Economics, Mood, as reported by Bankrate. “The impact will be most noticeable in tourism, which is counted in GDP as services exports. Supply chain disruptions could also weigh on the U.S. economy.”

How the Coronavirus is a Financial Problem for Individuals

In addition to macroeconomic concerns, personal finance fears related to COVID-19 continue to grow as well. School closures and no-paid sick leave for some workers could mean increased financial precarity for individuals during this time.

Consumers who have been financially impacted by the coronavirus can contact loan services and lenders to discuss their options. Student loans and mortgage payments may be delayed or frozen to help individuals who are having trouble making ends meet during this time.

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Individuals who may have lost their income can consider looking up their state’s unemployment policies for relief options. Additionally, older adults are at a higher risk of illness and may need greater monetary support. Those who fall under this category can protect themselves financially by visiting organizations such as the National Council on Aging for local and state benefits.

It is important for individuals to be aware of potential coronavirus-related predatory practices or scams. Consumers can refer to the Federal Trade Commission's tips on how to be prepared and better protected against donation scams or false product branding and the like.

How Can You Survive a Recession?

Recessions occur about every four years, based on past patterns of economic downturns in the United States. And while the average length of a growing economy is 38.7 months or around three years, recessions last an average of 17.5 months or a year and a half, according to the National Bureau of Economics.

Financial recessions are periods of time in which “the gross domestic product growth rate – the amount of stuff we produce and sell – is negative for two or more consecutive quarters”, according to the Forbes definition. During such terms, personal wages and corporate earnings typically drop, paying down debt or saving could become more difficult, and getting or keeping a job could be challenging.

The government has historically responded to such downturns with a number of economic means that include increasing the monetary stock via the Federal Reserve Bank, initiating infrastructure projects, or cutting taxes for consumers. While such state plans can be effective, there are steps that individuals can take to mitigate financial losses during this time.

Make Sure You Have an Emergency Fund

Being in a recession can mean a loss of work or an increasingly precarious financial situation. An emergency fund can help ease any monetary strain faced during an economic decline. Financial experts recommend that individuals save 15% of their income each year.

But if you’re like most Americans, chances are you aren’t prepared for a financial emergency. In fact, only 40% of Americans are able to cover an unforeseen emergency expense of $1,000, according to a survey from Bankrate. Additionally, one in three consumers has less than $5,000 in retirement savings, while one in five has no savings at all, according to a 2018 Northwestern Mutual study.

Such savings deficits can make it difficult to be ready in times of fiscal emergencies. This is why some financial experts suggest following a 50/30/20 budgeting plan that recommends spending 50% of your income after tax on necessities, 30% on personal desires, and at least 20% on savings. Putting 20% of each monthly income provides a sense of security in the event of a financial emergency and can subsequently reduce monetary stress.

Having a money-market account can also be a viable way to protect yourself financially. These are savings accounts with checking features and that typically come with debit cards, unlike traditional savings accounts. 

Diversify Your Portfolio

Diversifying is a practice of dispersing your investments to help reduce the volatility of the portfolio over time. While this practice will not guarantee against losses, it is a strategy that can help to balance reward and risk.

One way investors can diversify their portfolio is with asset allocation funds. These funds come with a predetermined combination of stocks and bonds, which can mean greater bonds and cash allocation.

Consumers can also consider a combination of mutual funds or exchange-traded funds (ETFs). Financial experts recommend using the 5/25 ratio, which means sticking to five different asset classes and not having more than 25% of your money in one of them.

It can also help to examine what is in each of your funds, to make sure your portfolio is not concentrated within the same areas. Consumers who have the capital can also consider customizing with individual stocks and bonds.

Older adults or retired investors will also need to maintain a balanced portfolio, according to expert financial advice. While having enough cash for basic needs during a recession is important, moving an entire portfolio to cash could be risky in the long-run.

Investors should be sure to consult with a financial advisor to determine the most appropriate options for them.

Reach Out For Help

Those impacted by the coronavirus and who feel financially strained during this time can reach out for help from an expert.

Financial advisors can not only provide coronavirus money advice but can also offer impartial opinions about general monetary habits and give insight into areas that can be steered in the right direction. Advisors can offer a wealth of knowledge and experience regarding the best spending practices and can be reliable tools for easing financial burdens.

Other options for reliable credit counseling or relief may include religious organizations, credit unions, local and federal aid, or cash advances in the form of payday loans online. While “bad credit payday loans” or “payday loans for bad credit” are not typically offered as may be commonly thought, payday loans online may prove viable resources for an emergency.

Stay Calm

Research has shown that financial stress can have a large impact on mental and physical health. Indeed, research shows that those with higher levels of financial stress show more symptoms of anxiety and depression than those who are less financially strained.

Recessions and periods of the economic downturn may heighten stress levels and make it difficult to approach important decisions with a clear mind.  And when stress goes unchecked, it can have both emotional and physical detriments to one’s body. Frequent headaches and a weakened immune system are among the most common symptoms of stress.

Experts recommend taking steps to maintain a healthy mental state. Individuals may find that practicing self-care rituals and maintaining daily routines can help to ease their minds. Additionally, it may help consumers to keep in mind that recessions are inevitable and a part of a cyclical economic system.

Jim Hughes   OpenCashAdvance Marketing Manager
Personal Finance
Jim Hughes remembers checking his first email on the original BlackBerry 850 nearly 20 years ago. It was spam, and he fell for it. Even so, he’s been on the beat every day since, following the ebbs and flows of financial technology. Look to Jim for insider exclusives on shorter-duration loans, installment loans, and other popular products in fintech today.
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