A recession can be a scary time financially, but it doesn’t have to be if you prepare well in advance.
The US economy is collapsing and many are predicting a recession that could be comparable to the Great Depression or worse. All over the world, inflation is soaring, and we can all feel the ground moving, and with it, our finances and investments too. Many people worry about inflation and sweat to make the right decisions to ensure their financial security when the economy turns sour. If you’re looking to prepare well before the storm hits, here are some tips that will help you better manage your finances.
1. Create (or update) your budget plan
The first step to taking control of your finances is to create a budget. If you don’t already have one, now is the time to sit down and figure out where your money is going. Start by tracking your income and expenses for at least a month to get an accurate picture of your spending. Once you understand your cash flow, you can start making changes to fit everything into your budget. For example, if you spend more than you would like to eat out, you can adjust accordingly, such as reducing other expenses.
2. Cut unnecessary expenses and save, save, save!
Reducing unnecessary expenses will help you increase your cash flow and reduce your overall financial stress during a recession or down market period. You can do this by cutting back on luxury items and unnecessary purchases, such as big houses, expensive cars, and big-screen TVs. When shopping, buy in bulk whenever possible to save money, especially when you have limited income to pay bills or are trying to save more.
According to US Senator Elizabeth Warren’s book All Your Worth: The Ultimate Lifetime Money Plan, try to spend about 50% of what you earn each month on necessities, 30% on wants, and 20% on savings, too. known as 50/30/. 20 rule of thumb. Although savings rates remain modest, they are gradually increasing. By saving in an online bank account, you can earn between 1.75% and 2% annual interest or more, which is higher than the average rate at a traditional bank. It may seem like a daunting chore, but even small monthly savings can add up over time.
3. Keep an emergency fund
It’s always a good idea to have emergency funds on hand, but it’s even more critical during times of economic upheaval. It will help you deal with unexpected or regular expenses, such as mortgages, medical problems, car repairs and school fees, when your wallet is tight. To calculate how much money to save in your emergency savings, you need to go back to your budget plan to figure out how much you’re spending on bills and necessities.
Although circumstantial, if you have a stable job, can rely on family or friends, do not have large debts, etc., an emergency fund that can cover three to four months of expenses might suffice. If your financial situation is less flexible (for example, you are expecting a child or are the sole source of income for the family), you may need to set aside enough money for about a year of expenses.
4. Get rid of high interest debt
If you have high interest debt, now is the time to pay it off. Credit card debt, in particular, can be very costly, so much so that it can be difficult to save money or invest for the future. If you’re struggling to pay off your debts, consider talking to a financial advisor about consolidating your debt or enrolling in a debt management program.
According to CreditCards.com, the national average credit card rate topped 17% for the first time in more than two years. Additionally, the US Federal Reserve intends to raise interest rates for the rest of the year. Therefore, getting rid of high-interest debt should be a top priority during an economic downturn.
5. Be aware of investment risks
When planning for a recession, you don’t have to completely eliminate all risk from your investment portfolio. After all, stocks tend to recover after a market drop, and there is still room for growth, even in tough times. If you have a steady job and have time until retirement, you may want to consider investing more aggressively, but don’t watch your assets too much, so you can exit quickly if needed. However, if you are retired or approaching retirement age, now may not be the time to bet on stocks and other risky assets. Instead, focus on capital preservation by investing in less risky assets, such as bonds and cash equivalents.
If you are new to investing, you can use micro investing apps to your advantage. You can simply invest small amounts of money, say US$5, in the market on a monthly basis, and your deposits will accumulate over time. This is an effective technique for new investors who want to get into the financial pool before diving in completely. Also, keep learning more about investing, whether by reading books, Reddit posts, or business journals, to make sure you’re up to date with the latest market developments.
No one knows exactly what the future holds, but by following these simple tips, you can help protect your finances during these uncertain times. Remember to think long-term and don’t make rash decisions – we’ll get through this together!
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