If you watch any news at all, you know that many financial experts believe a recession is looming on the horizon. True or not, recessions are a fact of life and it’s usually a matter of when, not if, you’ll experience one for yourself. You may not be able to control an entire economy, but you do have considerable control over your own money.
The first step to securing your financial future is to create a plan for reaching your goals. A portion of that plan should include preparing for economic downturns. Here are a few strategies you can use to make your finances as recession-proof as possible.
Build an Emergency Fund
I bet you’ve heard this one a million times, and for good reason. One of the first things you learn about life is the unexpected will happen. Cars break down, home appliances stop working, or someone in the family gets sick. Any of these scenarios can easily cost hundreds of dollars, if not more, and that’s why having a cash reserve is so crucial. Without one, the path to bankruptcy becomes much shorter. There are a number of ways you can put money aside, from savings accounts to several investment options, but just be sure you are able to access the cash easily and quickly if needed.
Boost Your Income While You Can
The best way to prepare for an emergency is to take action before you’re in an actual crisis situation. There are a number of ways you can bring in more money. If you’re employed, ask for overtime or pick up extra shifts for a while. Increase your skill level and capabilities, then negotiate a pay increase. Freelance work is a great way to make extra money too. You could offer writing or social media management services, as well as consulting in your area of expertise. The key is to create multiple sources of income. Another way to have extra cash is to reduce your spending. Cancel those rarely used subscriptions, take your lunch instead of eating out, or do your own home maintenance rather than hiring help. Living well within your means simply never fails. As the old saying goes, “A penny saved is a penny earned.”
Pay Down Debt
This is a great idea anytime, but especially when there’s a possibility of a recession. Start with debts that carry the highest interest rates, such as credit cards, where carrying a monthly debt can literally cost you hundreds of dollars in interest alone. Student loans should be a priority as well. Eliminating these debts, or at least reducing them, will give you extra breathing room in your budget and enable you to further bolster your emergency fund.
Economic downturns are often synonymous with a plunge in the stock market, but avoid making knee-jerk decisions out of panic. It’s true that companies may find it difficult to expand and grow when times are tough, but changing your strategy in the midst of a recession can have a negative impact on your portfolio. The last thing you want to do is jeopardize your long-tern financial situation because of a short-term economic event. In fact, a recession is a fantastic buying opportunity. If you only invest during good times, when the market is going up, you’ll always be buying at higher prices. If you stop investing when the market falls, you’’re not taking advantage of lower prices. It can be scary to keep pushing your money into the market when you see values dropping, but wise investors know they’ll win in the long-term.
Consider A New Job
The current job market is hot and there are opportunities everywhere. If you haven’t job searched in a while, you might be pleasantly surprised to discover your value has significantly increased. Employers have been looking to fill a near record number of jobs for the last 18 months. What’s interesting is that people who switched jobs have been able to increase their wages by up to 5 percent over a year ago, compared to just 3.8 percent for people who stayed in their current jobs. At the very least, researching the job market may arm you with information that’ll help you obtain a pay raise where you’re currently employed.
Work With a Financial Professional
One of the best ways to increase both your knowledge and income is to work with someone whose expertise is building wealth. A skilled financial advisor can help you cut through the clutter, identify quality investments, and customize a plan just for you. Whether you’re confused, overwhelmed, or just uninformed about financial management topics, working with a pro is a great way to improve your financial situation. Ask around and do your homework to ensure you find the best advisor for you.
The bottom line is that there’s no need to panic or imagine a worst-case scenario. You have options and there are actions you can take, so create a plan and stay the course. Ultimately, one of the best ways to recession-proof your finances is to keep things in perspective. Recessions are short-term, and your plans are long-term, which means your plan will outlast the downturn. It may be tough to go through, but it won’t last forever. Keep a “big picture” mindset, be proactive, and you’ll be fine.
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