With debt levels going up, markets going up and down, and oil prices going down, knowing how to save money to make it through a recession could save your life. We can’t stop a recession from happening, but we can control how we respond to it and prepare for it. Taking precautions to protect your finances can make a huge difference, so before the following financial downturn, take any of these steps to protect your finances.
Save money for emergencies.
Our jobs and incomes can be in danger when the economy slows down. This is why saving an emergency fund is important when preparing for a recession. An emergency saving is money you’ve saved to help you get through the day-to-day when you’re having trouble paying your bills.
Whether your hours have been cut, you’ve lost your job, your business isn’t making any money, or you made bad financial decisions, emergency savings will give you a safety net to rely on to ride out the recession and get back on your feet.
Suppose you can save 3 to 6 months’ worth of your pay. That way, when the economy is bad, and money is tight, you won’t have to borrow money. People often regret using credit as a safety net for years after the fact. Most people don’t think they’ll need more money than they have now to repay the money they borrowed (plus interest) during a hard time.
Tough times still last longer than you think they will, so the debts that come from them are always bigger than you thought they would be. Since most people live on their whole paycheck, they don’t have any extra money to pay off this debt. So, if they want to pay off their debt with their current income, they either need to make more money or make big changes to how they live.
Here are several things you can perform to save for an emergency fund if you haven’t already. Most likely, you won’t be able to save money during a recession because you’ll have other things to take care of. Because of this, it’s best to start saving money before a recession hits.
Set up a spending plan and pay off your debts.
Carrying a debt load is exactly that: a burden. And during a recession, when jobs are hard to find and money is tight, some of these high debt payments will only add to the stress. So, it’s time to take stock of your finances and payment obligations and plan to start paying down your debts.
During a recession, it can be hard to pay for day-to-day costs, let alone debt payments, which can cause your debt to get out of hand. Having a lot of debt is very dangerous because even a small change in the outside world could make it hard to pay your bills.
Even though you may be able to pay your bills now, that could change if you lose your job, interest rates go up, or banks tighten their credit limits. The first step to paying off your debts is to make a budget that shows exactly how much money comes into your home and where it is supposed to go.
If you aren’t paying down your debt as quickly as you could or, even worse, are adding to it, a budget will help you figure out where you can cut back on spending so that more of your cash can go toward paying off your debt. Here are detailed instructions on making a household budget to live within your means and handle your money better.
Downsize to live a cheaper life.
Downsizing and learning to live on less can be a great way to prepare for a recession. If you can learn to get by with less, you’ll save more money and won’t have to struggle to adjust to a new way of life.
Living cheaply isn’t as hard as it sounds, and contrary to what most people think, it doesn’t mean pinching pennies and giving up things that make you happy. Instead, it’s about making choices about how you spend your money that lowers your costs while having little effect on your lifestyle.
There are many ways to start living on less money. If your family has two cars, you might want to eliminate one and use public transportation instead. Just by making this choice, you could save $9,000 per year. Or, if you need two cars, you could sell one and use the money to buy a subcompact car that gets better gas mileage.
You can also think about getting a smaller apartment or home, spending less on groceries, and reducing the number of minutes on your cell phone plan. The key is to ensure that your cuts aren’t too big, or it will be hard to keep up in the long run. Learning to get by with less is the key to living through a recession.
Diversify your sources of income.
Most of us have heard the saying, “don’t put all your eggs in one basket.” This could also be said about how you make money. Putting all of your money into one job is risky because if the economy tanks and you lose your job, you’ll also lose your only source of income and won’t be able to spend all of your invoices.
Having more than one way to make money can be very helpful. If one source of income starts to drop off or goes away completely, you have other sources to help you stay afloat. Getting a second job isn’t the only way to diversify your income.
If your spouse works in a different sector than you do, you already have some income diversity. But if you want to spread your wings and make more money, there are many things you can do. For example, you could rent a room or a space in your garage.
You could even buy a rental home and lease it out. You could consider getting a weekend job with a pretty open schedule. If you have a strong skill set or are working on building one, you could look for ways to make money with it.
For example, you could look into freelance work articles and blog posts if you’re a good writer. If you’re crafty, you could sell your creations on Etsy. You could advertise your services on Craigslist if you’re handy around the house. Don’t let these instances limit you, though. You could use any ability that you have to make extra money.
Mix up your investments.
Diversifying your investments is just as important as diversifying your income. You could lose a lot if most of your money is in the stock market and the economy decreases. This is especially true if all your money is in one type of investment. And this is why it’s important to put your money into different things.
Check your investment portfolio and ensure your money is spread across different industries or assets. This way, when the market falls, your investments won’t be hit as hard, and your losses won’t be as big. You can put it in various ways when it comes to spreading your money. Buying a house, condo, or even a piece of land is a prevalent investment that grows in value over time.
Investing in stocks, especially the stock market index, is a beneficial strategy for helping your portfolio grow, and bonds have often been a good way to make money. You could also invest in other countries. Spreading your money around can help you be less vulnerable to an economic recession.