Recession talk can strike fear in the hearts of many, especially when it comes to your personal finances. Even though they are a normal part of the economic cycle, it doesn’t mean you don’t have any control to manage the impacts a recession may have on your money. Learn the 7 steps to prepare for a recession & how to put yourself in a more secure position with some strategic planning.
As an elder millennial (I was born in 1985), one of the few perks is having the experience of having weathered a recession (2008) at the start of my adulting years. I graduated from college in May 2007 and entered the workforce six months before the US economy fell into an 18-month freefall, a time we now refer to as the Great Recession. I’d never heard the word recession before, but I learned very quickly what it was, and how real the impact could be.
I was a new graduate with a new job, but instead of getting an apartment right out of college, I made the more cautious decision to move back in with my parents for 2 years. My family and I weathered the recession relatively unscathed (watching our retirement accounts take a massive nosedive wasn’t fun), but the impacts were felt all around me. I saw friends losing jobs and being unable to find well-paying work. Gas prices spiked to over $4 a gallon. Foreclosures skyrocketed and many people lost their homes. Birth rates plummeted. It was a wild time, and many people, especially Millennials are still feeling the impacts of the 2008 recession today. It was a harrowing time, to say the least.
As a growing choir of financial analysts pontificate about the likelihood of another recession, it’s important to know that you can take steps right now to shore up your finances, and weather any storm that may be headed our way. Here are 7 steps you can take to manage the impact on your finances during a recession.
1. Reduce unnecessary expenses
It’s never a better time to comb through your bank and credit card statements and see what’s going on with your money. Maybe you have a couple of subscriptions that you meant to cancel but never got around to. Or perhaps you’ve been making extra trips to your local take-out restaurant instead of meal planning on the weekend? Here’s your chance to trim any fat in your spending and get serious with your budget. Have you been a long-time customer of a service provider? Now is a good time to shop around and see if you’re still getting the best price for that service. A pre-paid cell phone service provider like Mint Mobile can shave thousands off your annual cell phone bill, and cutting cable in favor of lower-cost streaming services like YouTube TV or Hulu are options to explore.
2. Bulk up your savings
While layoffs are possible in any economic climate, the chances of you experiencing one increase during a recession. When people slow down their spending, that reduction in income affects businesses AKA employers. So if you typically keep a 3-month emergency fund, aim to double it to 6 months at least. In a best-case scenario, you don’t lose your job, and you’ve just created an extra cushion that can grant you peace of mind, or can be used for a longer-term goal, like buying a home, when the economy is rosy again.
3. Prioritize paying off high-interest-rate debt
Interest rates went to zero during The Great Recession, in order to stimulate spending. We’re seeing the opposite happen, where interest rates have doubled in just a few short months. When interest rates go up, borrowing money becomes more expensive. The biggest impact for most will be the price of variable interest rate debt, AKA credit card debt. A larger chunk of your payment will go towards interest as the rate increase, so if you’ve been neglecting paying them off, now is the time to put that payoff plan into overdrive. As they say, time is money, and it’s definitely going to cost you. Need some help prioritizing your debt payoff? Check out our debt-payoff strategy guide.
4. Diversify your skills and brush up your resume
Also, if it’s been a while since you applied for work and your resume hasn’t been updated in the last 12 months, now is a good time for a resume refresh. Make sure to include your latest role and experience, expand your network via LinkedIn, and keep an eye out for industry layoffs on message boards like TheLayoff.com & Layoff.FYI.
5. Increase your income through low-startup cost side hustles
I love a good side hustle. Personally, I’m totally against relying on a single income source to find your life. One is too close to none, and especially in a recession, income instability is a real possibility. If you’ve always had a business idea, now is the time to try it out. Thanks to the internet, starting a low-cost online business is more accessible than ever. Start by looking at your existing professional and personal skills, and see if there’s something in either of those lists that you’d love to do as a business. Learning about how to create passive income streams can change your life. Need some inspiration? Check out our list of 20 side hustles you can start today!
6. If you can afford it, keep investing regularly
If a brand you love is running a 50% sale, you wouldn’t hesitate to buy, right? It’s the same concept when the stock market goes down. When you invest during a down market, you’re able to purchase more shares of your favorite companies at a discounted price. Scared to buy at the wrong time? Instead of trying to time the market, consider a dollar-cost-averaging approach, which can help you lower your overall cost basis and help spread your risk over time. Don’t know how to get started as an investor? Check out our beginner’s guide to investing.
7. Delay large purchases if you don’t need them right this second.
There’s nothing worse than making a big purchase, like buying a home, for example, and losing your job right after. This happened to my husband right before we started home shopping in 2015. As a result, we delayed purchasing a home until a year later, when he finally found a new job. Not having to worry about a mortgage was a godsend, so if your job or industry is seeing a spike in layoffs, now might be the time to revisit any big spending plans you have. However, with rising interest rates, if buying a home is your #1 priority, it may not pay to wait. This is why the old adage “personal finance is personal” is truer than ever. Value-based spending is a great way to shift your relationship with money.
With these 7 tips, you can prepare yourself for a recession, or any other financial downturn that life may throw at you.
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