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4 steps you can take to prepare for a financial disruption

Twenty/20

As the coronavirus outbreak spreads, experts say there's a growing likelihood it could affect your income, even if you aren't sick. On Tuesday, the nation's biggest private employer, Walmart, announced it was enacting an emergency employee leave program for workers who may find themselves unable to clock in, while Starbucks is offering up to 14 days of "catastrophe pay" for baristas diagnosed with or exposed to the virus.

Should the outbreak continue fueling stock market declines, experts warn, the downturn could lead to furloughs or job cuts, meaning that many people could lose their income for a period of time. The Washington Post reported Wednesday that the outbreak has already led to layoffs in industries including travel, events, and trucking. 

The best thing you can do now, experts say, is to prepare yourself by making some smart money moves. "Always plan ahead for the unknown," says Amy Shepard, a certified financial planner with Arizona-based financial firm Sensible Money.

These moves will also serve you well in the event of other kinds of financial emergencies and could help set you up for success once the outlook improves again.

1. Prioritize building your emergency fund

Experts say the single most important thing you can do to prepare for a tough economy is to have some cash savings to help you get by if you lose your job or have to go without a couple of paychecks. "Have an emergency fund," says Shepard. "It gives you a cushion so you don't have to go into debt."

Experts recommend a goal of having three to six months' worth of expenses saved up. Most people are well short of that. Only 41% of Americans have enough money put away to handle a $1,000 emergency, according to data from Bankrate, and 28% have no emergency savings at all.

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You can build up a $1,000 emergency fund saving less than $50 per paycheck for a year. 

Or, if you anticipate getting a tax refund this year, try setting some or all of that money aside in a savings account. Last year, the average refund was almost $2,900 — that could give you a great head start.

2. Consider diversifying your income

"Any extra money you have every month to play with helps if you get into a situation with a layoff," certified financial planner Shannah Compton Game, host of the Millennial Money podcast, told Grow last year.

If you can't go to work, think about what other opportunities you might have to earn money at home. There are numerous side hustles you can do without leaving your house, some of which pay better than you'd think. You can try writing for blogs or ad campaigns, for example, or become a part-time virtual assistant. Last year, Grow spoke with one woman who turned her virtual assistant side hustle into a full-time, six-figure business.

3. Pay down debts to free up credit

Because most Americans don't have enough in cash savings to see them through an emergency, their recourse is to borrow money — whether by taking out a loan or charging expenses to a credit card. If you have to borrow, experts say, it's important to plan ahead for ways to do so cheaply and safely. 

Ahead of a downturn, it's smart to pay down any debt you have, especially high-rate credit card debt. You might also look at options to refinance or consolidate debt. That gives you some flexibility in your budget and some available credit to use in an emergency.

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4. Plan out your spending

We don't know what's going to happen over the next few months, so it's a good idea to try and map out your spending now so that you have a plan to stick to. First off, if you don't have a budget, now could be a great time to create one.

Consider making cuts to your nonessential expenses by figuring out what you can live without and what you may not be using that much anyway. That might include things like subscriptions, on which the average consumer spends more than $237 per month.

Finally, think about whether you can hold off on big-ticket purchases, like a new car or a pricey home appliance, until later this year. Or figure out how to get what you need for less money, perhaps by buying used, so you're not adding an additional cost and you can keep your expenses more manageable. 

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