Globally large, well established companies are faltering. Brand names you would have never expected to go away are suddenly at the brink of bankruptcy or filed for bankruptcy. Banks are shutdown and savings are eventually lost. Getting new credit is extremely difficult – for businesses and consumers.
Business Leaders (the good ones at least) are preparing their businesses for the worst (but hope for the best outcome of course). This approach should be yours, too. Nobody knows right now how long this crisis will last and how deep the impact will be. Will it be a recession or a deep recession (multi-year) or will it be a depression like in the 1930’s? Nobody knows and that makes this situation so incredibly difficult.
So, start planning for the worst, but hope to not even go there. But if things turn really sour you are prepared and are not running around in panic. This is not the time to panic. How can you prepare for this crisis? Reduce your debt if possible. Avoid expenses not needed. Example: Don’t buy that 60 Inch Flat screen TV just now. The 42 Inch TV you have will do for a while. Do you really need a bigger house at the moment? A bigger house comes with a bigger mortgage payment and a bigger property tax bill and of course it is not cheaper to keep it warm or cool (depending on where you live). If you haven’t, start building a cash reserve for hard times. No, don’t keep the cash at home under the mattress. Open up a money market account or savings account at a bank. Make sure the banks are FDIC insured. If you are nervous about the stability of one bank, spread out your money across several banks to reduce the risk. Overall I would try to have a nest egg of at least 6 month of living expenses in cash right now. Maybe you should plan and save money for even more (9 months maybe?)!
Protect your credit as it will become more important to have good or perfect credit. Banks will stop lending money to people with low credit scores or if they lend money, they will increase the interest rates dramatically to reduce their risks. Only with a clean and solid credit history are you prepared for these times. The better your credit score, the better you are prepared. I always recommend to monitor your credit report and to review your credit score on a recurring base.
Now here comes a tricky part. Do not lend your personal money to friends or family unless you can properly assess the risk. Don’t get me wrong, family always comes first, but don’t put your own financial security at risk by lending money in a situation that might turn sour. If a friend or family member needs help, there are other ways than money to help. If you give money, make sure it gets spend for the actual purpose requested and not for something else. You are a responsible person, otherwise you would not read this. Help others to manage their financial situation better. Mom and Dad maybe need some advice or reassurance that they can go throw retirement – you get the idea.
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