Save and Invest

Worried about a recession? Your emergency fund should be your top priority


CNBC Make It is posting a new financial task to tackle each day for a month. These are all meant to be simple, time-sensitive activities to take your mind off of the news for a moment and, hopefully, put you on sturdier financial footing. This is day 21 of 30.

With more than 26 million Americans out of work, families and businesses are feeling the financial pinch on virtually every level. And some warn that the economic environment is going to get worse before it gets better. 

With that in mind, the most important thing anyone can do to prepare for a recession is to build up their cash reserves, financial experts say. It's not novel advice, but it is important. If you're worried about the future, prioritize sending extra money to your savings rather than investing more (or at all).

Every extra dollar you save is one more you have to fall back on, should you need it. It will allow you to pay your rent or mortgage and cover other necessities without taking on more debt. 

Financial experts generally say to save three to six months' worth of expenses, but you should aim to put away whatever amount makes you feel the most comfortable and secure. Today, take some time to figure out how you might be able to save more money in the coming weeks.

Here are five ideas to get you started.

1. Find a savings app that works for you

Automation is one of the keys to actually saving money because it takes procrastination and temptation out of the equation. To try it, use an app like DigitQapitalChime or Albert to save for you.

While each works slightly differently, they generally analyze your spending patterns and put money away for you, in the case of Digit and Albert, or abide by rules you set for your saving and spending, like Qapital. Take note of the subscription fee, if there is one, and test one at a time to find the one that works best for you.

2. Take the easy wins

You're likely spending less on certain discretionary expenses right now, including transportation, entertainment, travel and health and beauty services. All of that extra money can go directly into savings. If you received — or will receive — a stimulus check and don't immediately need it, stash that away, too. While it's important to use your dollars to help your community, it's OK to protect yourself too. 

Next, evaluate your last few credit card statements and make a list of everything you're paying for that's not a "need." See if there are any items you can go without, just until you feel more secure. You can also institute some No Spend rules for yourself until your emergency fund is where you want it to be.

If you do not have an emergency fund that can sustain you and your family for a few months but you are investing in a 401(k) or other account, pause your contributions for now. Again, remember that this is all temporary. 

3. Set mini goals

Most financial experts say your emergency fund should hold three to six months' worth of living expenses. While that's a good goal, it can also seem overwhelming and unreachable if you're starting from zero. To build momentum, set a more realistic mini goal for yourself to hit first — say, $1,000 — and start there. 

4. Plan as much as you can

One key to saving money is to plan for as much as you possibly can. That's especially true for things like groceries and other items you routinely need to buy. If you stick to your plan, you're less likely to incur surprise expenses.

Pinterest and Reddit offer seemingly unlimited meal prep ideas, as well as budgeting sheets and ideas. Spend some time looking for recipes that work for you and your family so you're always prepared with a list and a plan.

5. Get smart about your debt

Given the current circumstances, your lenders might be more open to working with you to restructure some of your debt. Call your credit card companies, car lender, student loan servicers, etc., to see what options are available that would let you keep more of your cash now, rather than putting it toward your debt.

Federal student loan payments, for example, are paused through September. You can redirect your payment to your savings account if you need to.

For more guidance, check out eight steps to take if you can't make ends meet because of the coronavirus.

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How a 31-year-old making $118,000 in Philadelphia spends his money
How a 31-year-old making $118,000 in Philadelphia spends his money