Do These Six Things to Financially Prepare for a Recession
Plummeting stocks, decreased consumer spending, and a surge in unemployment are all signals that a recession is underway, but what is a recession, anyway?
According to a recent post on The White House blog, a recession is “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.”
Preparing for an economic downturn can have a lasting effect on your financial wellbeing. Below are six tips that will help you financially prepare for a recession.
Revisit your budget
Like New Year’s resolutions, a budget is not a ‘set it and forget it’ project. Budgets take consistent work and updates, especially during an economic downturn. If it’s been a while since you last reviewed your budget, the time is now. Make any necessary changes, updates, and improvements you’d like to see implemented in case of a recession.
Cut back where possible
There’s a clear distinction between needs and wants, especially during financially challenging times. While some expenses, like mortgage, utility bills, and groceries are non-negotiable, other expenses, like entertainment, vacations, and take-out aren’t basic needs. We all have room for improvement in our spending. Identify yours and cut back where possible.
Add to your emergency fund
According to financial experts, an emergency fund should cover 8 to 12 months of a household’s total expenses. So, assuming your household monthly expenses are $5,000, you should have at least $40,000 in your emergency savings account. This would cover your family’s cost of living while dealing with an unexpected job loss.
Consider new career opportunities
Speaking of unexpected job loss, layoffs and hiring freezes are some of the top indicators that a recession is underway. Get ahead of the unpredictable job market by updating your resume and leveraging your network. While your job may seem secure, it never hurts to be prepared and proactive. Doing so can help you bounce back quickly from an unforeseen discharge.
Avoid emotional money decisions
Fear-based financial decisions are never a good idea, especially during a recession. While it’s important to stay on top of economic news, don’t let headlines and expert advice deter you from your goals and values. At the end of the day, only you know what’s best for you and your family. Avoid impulsive decisions you could regret a year from now.
Pay off high-interest debt
While it may seem counterintuitive to focus on paying off debt during a financial crisis, doing so can save you money in the long run. Your debt isn’t going anywhere. On the contrary, it’s accumulating interest that adds up quickly. Use any extra cash you save from cutting back on expenses and re-direct it to paying off your debt. You’ll thank yourself later.