During recessions, money is tight, and people are forced to cut back on all kinds of expenses. The pain from a recession can last several years and force you to make drastic changes in your lifestyle. However, there are ways to protect yourself from the worst effects of a recession. It’s important to be prepared for a recession before it happens so that you can weather the storm when it does. Don’t be caught unaware.
Saving aggressively is an obvious piece of advice, but one that bears repeating: saving money is good, and saving more money is even better. If you’re not already making a habit of putting away 10% of your income into a retirement fund or savings account, make it your goal to start doing so. Also, keep in mind that the stock market is volatile in the long run. Therefore, investing all your savings in stocks is risky. Instead, you should diversify and invest in other types of funds, such as money market funds or high-yield savings accounts.
When you’re preparing for hard times financially, have an emergency fund to draw from so you don’t end up in worse shape than when you started — no matter how bad things seem at first. Saving will help ensure you have enough money when things get tough, whether due to unpredictable events like natural disasters or a recession caused by human activity (e.g., overspending).
Know Your Numbers
Unfortunately, most Americans don’t know how much they spend every month. It’s time to look at your wallet and see how much you’re spending. Sit down with a pen and paper and go over your monthly expenses at home, work, and elsewhere, including:
• Vehicle maintenance
• Entertainment (TV/movie/music)
• Personal care items (haircuts/showers)
• Transportation (car ownership/gasoline; public transit passes; car payments)
• Children’s expenses (school fees & supplies; after-school activities)
• College tuition & fees; food & beverages out
• Family health insurance/medical expenses etc.
You can’t save money and lower your expenses unless you know how much you’re spending.
Pay Off Debt
Are you carrying a balance on your credit card? It might not seem like a big deal, but it could make all the difference for your financial security when it comes time to weather an economic downturn. If you accumulate interest on your credit card from month to month, it means you’re buying things you can’t afford. And if you can’t afford to pay off your credit card this month, what’s going to happen when your bank account is suddenly $1,000 lighter because of a job loss?
Another step is to pay off any outstanding loans. Look at your student loans and try to pay them off as soon as possible. If you can pay off just one or two of them each year, this will help reduce your monthly bills and help put some extra cash back into your pocket.
By paying off that debt now, you’re taking care of yourself and making sure all your money goes toward things that are most important to you — not toward interest on purchases you made months ago. It’s also step one in building an emergency fund, which is one of the best ways to guard against future financial disasters (which we’ll talk more about later).
If paying off debt seems overwhelming, take it one step at a time. Make a plan and stick with it: set aside a certain amount of money each month until the debt is gone. You may have to give up weekly outside dinners or regular shopping trips, but think of how much better it will feel to have that money going toward something more meaningful.
Supplement Your Income
There are many ways to supplement your income when you’re in the lurch, but if you want to keep some money flowing in, consider these options:
• Cut your spending.
• Do a side hustle.
• Sell things you don’t need.
• Get a part-time job (and learn how to do it well).
• Get another job as necessary, and learn how to do it well (this is also an excellent way to expand your skill-set).
• Start an online business (a side hustle or full-time business) that’s either passive income or gets products into the hands of others who wouldn’t otherwise purchase them. For example, products are offered through e-commerce sites like Amazon or eBay or via social media such as Facebook, Twitter, Instagram, etc. (these methods allow more control over where your money goes, rather than being an employee at Walmart).
If you already have a full-time job, getting a side gig can be one of the best ways to recession-proof your finances. There are lots of jobs that you can do on the side, which will allow you to bring in some extra income and boost your savings. In addition, many legitimate online opportunities make it easy to work from home.
When choosing a gig, consider how much time you’re willing to put into it, as well as what sorts of things you enjoy doing. It’s critical that you pick something that won’t burn you out or feel like additional stress but instead is something fun or exciting for you to do outside of your regular job.
Keep Your Assets Accessible
The best way to protect your cash during a recession is to keep it liquid and accessible. You don’t want to have your savings tied up in something that could take a long time to convert back into cash, like real estate or a business investment during uncertain times. If you’re looking for something less risky than stocks, consider a high-yield savings account, which can still offer you a decent return on your investment.
High-yield savings accounts offer the best of both worlds. You’ll typically get higher interest rates than traditional banks but still access your money when you need to. A downside is that interest rates can fluctuate. So, a bank might advertise a high-interest rate, but that could change at any time. Be aware of that.
“Best High-Yield Savings Accounts Of April 2022 – Forbes ….” 11 Apr. 2022.
“Traditional Savings Accounts – Investopedia” 20 Feb. 2022.