Financial First Aid: How can you prepare for a recession?

How to apply for unemployment, and preparing for recession

CLEVELAND, Ohio (WOIO) - JP Morgan Chase CEO Jamie Dimon says a major recession is on its way, thanks to the coronavirus pandemic.

Dimon expects gross domestic product to plunge at a 35% annual rate in the second quarter.

The downturn is expected to last through the rest of the year, with the unemployment rate spiking as high as 14%.

So how can you prepare for a possible recession?

Experts say now is the time to get your finances in order.

Three experts spoke to 19 News to help you prepare for a recession.

First, they recommend creating a budget.

You need to know where your money is going, especially if you lose your income so you can prioritize paying bills.

Here’s Kimberly Palmer, personal finance expert at Nerd Wallet.

“We really encourage people to use something like the 50/20/30 budget, which basically means 50 percent of your take home pay goes to needs, 30 percent to wants and 20 percent to savings and debt payments. Basically it's a way to tell, am I spending too much? Do I need to cut back?” Palmer said.

Next, you should increase your savings if possible.

Here’s Christian Nsiah, PhD, finance professor at Baldwin Wallace University.

“When it comes to savings, the only savings that are really important are emergency fund savings. The rule of thumb is you want to have approximately three to six months of funds,” Nsiah said.

Try to put any extra money you can right now into savings, especially if you can trim your spending.

“And when we say savings, we're not saying put the money under your pillow, anything like that. You can put that money and put it into liquid assets, things you can easily get the money back from. Like money market mutual funds and high yield savings accounts, things like that,” Nsaih said.

Saving that much can be hard to do.

Here’s Scott Wright, a finance professor at Ohio University.

“I've read various statistics on Americans living paycheck to paycheck, and typically it's about 2/3rds. That means when your paycheck's done, you're going to have a really hard time paying your rent, your bills, your utilities etc, and getting on new health insurance,” Wright said.

Remember, if you lose your job, it takes awhile for unemployment benefits to kick in.

“Because you gotta remember, even though a lot of times you can file for unemployment, there's a lag time between when you get that unemployment and when you lost your job,” Wright said.

If you're worried about losing your job, you might want to come up with a plan B.

“Look at side gigs, freelance jobs, contract work. See if you can supplement your income, so then if your full time job does disappear, you can fall back on a backup option. That can give people piece of mind and also supplement their income right now,’ Kimberly Palmer said.

You can read more advice about preparing for a recession from Nerd Wallet here.

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