When the economy takes a nosedive, your wallet may be the first to suffer. A recession means a steep economic downturn, complete with negative economic activity that affects almost everyone.
Instead of being another blindsided consumer, there are ways to prepare for an economic recession and stay ahead of the curve.
Build Your Emergency Fund
If you don’t already have one, it’s high time you did. An emergency fund can be a safety net in case of cut hours, job loss, or any other unforeseen event that might happen during a recession. Generally, you should plan for 3 to 6 months of your income in a savings account. While that can seem unobtainable, there are small steps to take to get to your goal. To get started, it can be helpful to dedicate 10-15% of your monthly income to the desired savings account at first.
Keep Your Spending Habits in Check
While creating your emergency fund, it might be the time to look at your budget and overall spending. The recommended spending ratio is 30/20/50, where half of your income is dedicated to your needs like your rent and fixed expenses. The next 30% should be dedicated to your wants, or non-necessities and variable expenses. Then, 20% should be reserved for saving, investing and paying off any debt.
Compare the ratio to your last month’s bank statement or financial records- are you meeting the ratio, or are there areas in your spending that you can cut back?
Keep Up with Your Debt
Financial responsibilities such as paying back loans should be a priority, as it can have an impact on your finances! Not matter where you live, when focused on your savings goal it is important to stick to debt or obligations whether it is Title Loans in Columbus, Ohio, or a mortgage in Miami, Florida. Your state can affect the interest rates for your loan, which is something to keep in mind when taking out future loans.
Instead of leaving your debt by the wayside, keep up with your debt and make it a priority. If you are strapped for cash during a recession, it’s best to have a game plan. There are two major methods to keeping your debt in check:
- Avalanche Method: In this plan, you can tackle your debt by focusing in on one particular debt. Generally, this is the highest interest loan that you currently have. Tackling your higher interest loan can be tough, but it helps you save money on interest.
- SnowBall Method: In this method, you can start small and chip away at all your debt little by little. This can be the most rewarding method, as it motivated you to have smaller victories along the way. It may end up costing more in the long run, as interest will still accrue as you make payments.
Find Residual or Second Income Sources
If you possess a skillset that’s marketable, it can be a second source of income. Whether it is a hobby or a craft, creating an online store to sell your goods or services can help bring second or supplemental income during a recession. Additionally, some investments can provide residual income, such as rental properties or renting out your home.
Disclaimer: This content does not necessarily represent the views of IWB.