The financial crisis of 2007 to 2009 has still left deep scars on people and the heat is still being felt. Whether another crisis is imminent in the near future or not, it’s risky to let yourself be caught off guard, especially when it comes to your finances. Be recession ready with these 5 money management tips during a recession
1. Revisit your College and Retirement Goals
It’s important to have a financial plan in place that consists of long-term investment strategies. A diversified portfolio can help reduce volatility and may support the flexibility you require during an economic downturn. Target date funds are an excellent investing choice since they modify allocations and investment mixes based on your age or the distance to your objective (sending a child to college, for example).
2. Build an Emergency Fund
Generally it is recommended to have about 3 – 6 months of living expenses saved in an emergency fund that can be used for hardships such as a job loss or medical emergencies/expenses. There are several online emergency fund calculator such as https://www.statefarm.com/simple-insights/financial/building-an-emergency-fund-calculate-how-much-to-save that can help identify what your monthly expenses are so you can determine what could be a good emergency fund amount. Since in actuality an emergency fund is not an investment, it’s necessary to put it somewhere where you could get it right away like a checking account or a money market account.
3. Change your spending Habit
We can all agree that quite a number of expenditures are not entirely necessary. Expenses such as rent, food and utilities are necessities which we can’t do away with, but other expenses outside these necessities, most especially recurring charges such as unused gym memberships or subscriptions need to be revisited. “I can’t tell you how many people I’ve counseled who have gym memberships they never use and streaming services they forgot they subscribed to,” says Howard Dvorkin of Debt.com, “You can’t save money until you know how much you’re spending.” Apps such as www.truebill.com will help you track and manage your subscriptions, cut down several of your expenses and save more.
4. Get rid of high-interest credit card debt
Credit cards are known to have very high interest rates, so as the Federal continues to raise rates, carrying a balance will become even more costly. The first thing to do to manage your credit card debt is look at your balance. If you’re paying interest every month, you can call your credit card company to see if you qualify for lowering the rate you’re paying. You can also try to negotiate a payment plan for paying off the balance. In the wake of the pandemic, many banking institutions are temporarily lowering the interest rates on credit card debt through personal lines of credit or home equity loans with lower interest rates.
5. Lookout for Reskilling and Upskilling Avenues
This might be the last thing to come to mind during a period of economic turmoil, but many employment in the service sector were first eliminated by the coronavirus recession. When a new recession hits, we can never predict which industry will be the worst impacted. The main lesson to be learned from this is that having a wide range of abilities will help you easily diversify your sources of income and boost your income stream. Look out for free or paid personal and professional development events or learning opportunities from www.coursera.com and www.udemy.com. There are several of such flexible learning platforms which do offer professional certifications and university degrees.
Being conscious of the damages a recession can have on your financial health and making the necessary adjustments is the best strategy that’ll facilitate you to come out of recession with little damages. Hence with patience and dedication towards your new spending and saving habits, you can allow yourself to be a little less worried.