A recession is defined as two consecutive quarters of negative economic growth. During a recession, there is usually a decrease in consumer spending, an increase in unemployment, and a drop in stock prices.
While a recession can be a scary time for many people, there are some steps you can take to help protect your finances. In this article we’ll talk about 8 such steps.
So, what’s the wait for? Let’s begin!
Start Saving
One of the best ways to protect your finances during a recession is to start saving money now. If you have a job, start putting some money into savings each month. Even if you can only save a little per month, it will add up over time.
If you are already living on a tight budget, you may need to make some sacrifices in order to save. For example, you may need to cut back on eating out or reduce your cable TV package. The key is to find ways to save that work for you and your family. Check out more money saving tips in this article.
This saved money can act as a buffer during tough economic times. If you lose your job or have a decrease in income, you will have some money to fall back on.
Create a Budget and Stick To It
If you don’t have a budget, now is the time to create one. A budget will help you track your income and expenses, so you can make informed decisions about your money. For example, if you see that you are spending a lot of money on dining out, you may want to cut back in this area.
When creating your budget, be sure to include a savings goal. As we mentioned before, saving money is key to protecting your finances during a recession.
And once you have created your budget, make sure you stick to it. This can be difficult, especially if your income decreases or unexpected expenses come up. However, sticking to your budget will help you stay on track with your finances.
Clear Your Debts
Debt means interest payments. And interest payments reduce your available cash flow, making it more difficult to save money or weather a recession. Therefore, it’s important to try to pay off your debts, especially high-interest debt such as credit card debt.
There are a few different ways you can pay off debt. You can use the debt snowball method, where you focus on paying off your smallest debt first. Or, you can use the debt avalanche method, where you focus on paying off your debt with the highest interest rate first.
Whichever method you choose, make sure you are consistent with your payments and try to make more than the minimum payment each month to help pay off your debt quicker.
Look for Assistance Programs
If you are struggling to make ends meet, there may be assistance programs available to help you. For example, the government offers a variety of assistance programs for low-income families. There may also be programs available through your employer or local community.
Do your research to see what assistance programs are available to you. This can help you reduce your expenses and make ends meet during tough economic times.
Diversify Your Investment Portfolio
If you have investments, it’s important to diversify your portfolio. This means that you should not have all of your eggs in one basket. For example, if you have investments in the stock market, you may want to consider investing in bonds as well.
The reason for this is that different investments perform differently during a recession. For example, the stock market typically goes down during a recession. However, bonds may actually go up in value during this time.
Here’s a guide on how to invest during a recession.
Try Finding Alternative Income Sources
A recession can be a good time to start a side hustle. This can be something as simple as dog walking or yard work. Or, you could start a more involved business venture. The key is to find something that you are passionate about and that you can do to make extra money.
Other options for earning some extra bucks are:
- Getting a second part-time job
- Selling valuable household items that you don’t use anymore
- Asking for a raise at your current job
Get Insured
Having insurance is a must during a recession! This includes health, auto, and homeowners/renters insurance.
Insurance can help protect you financially if you experience an unexpected event. For example, if you get sick and have to go to the hospital, your health insurance will help cover the cost of your medical bills, protecting your finances from a major blow.
Make sure you shop around and compare rates before choosing an insurance policy. This will help you get the best coverage for the best price.
