5 tips to recession proof your finances
When it comes to the economy, you don’t have a choice about when a recession will hit. But just because a recession comes, doesn’t mean you have to participate. Use these tips to recession proof your finances. Learn more in today’s blog.
You can’t control whether there is a recession, but your finances will make a big difference in whether you participate or not. You could live paycheck to paycheck and have a lot of debt. That will make you vulnerable in a recession. But there are a number of things that you can do today that will make you less vulnerable to economic recessions. Here are 5 of them.
1. Eliminate debt today
One of the most important things to do to recession proof your finances is to eliminate debt. If your income goes down, you can’t just turn off the payments that you agreed to make on debt. You can’t get mad at the lender, you are the one who agreed to the terms when you signed the agreement. To insulate yourself in an economic recession, you need to eliminate your debt before a recession hits. It is easier to make choices that will eliminate your debt before the recession comes. Eliminating your debt also gives you more choices in good economic times.
2. Develop a budget and stick to it today
The time to get your finances in order is before you have problems. It is much easier to make choices and get yourself in good financial position when things are going well. So don’t wait until you are having problems to develop your budget. A budget will also help you eliminate your debt. You can make good choices ahead of time rather than making poor decisions on the spur of the moment. Just creating a budget is not enough, you also have to follow it. But it is easier to make decisions when you have a plan to follow. If you know you have to give something else up to stick to your budget, you can make decisions that line up with your priorities and still be in budget. Remember that once debt is gone, you can get and pay for exactly what you want when you want it.
3. Create an emergency fund
Having an emergency fund is important in good economic times. It becomes even more important when you are dealing with a recession. Recessions create enough pressure without dealing with emergencies. You don’t need the additional pressure that an emergency brings. Create your emergency fund before a recession hits. The choices you need to make to create an emergency fund are easier to absorb in good times. Don’t go without an emergency fund or wait until problems come. It will be too late then. Save money for your emergency fund now. A good goal is to have six months worth of monthly payments readily accessible should you need it.
4. Anticipate your big purchases
The more time you have, the less money you need to save every month to make big purchases. When you look ahead, you can anticipate the big purchases you need to make. Once you know what you need and when you need it, you can determine how much you need to save to make the purchase on that timeline. By saving ahead, you avoid having to borrow money. Borrowing increases the cost of your purchase. It also becomes harder to borrow money during a recession. Get rid of your debt, then save money so you can make your big purchases before a recession hits.
5. Develop hobbies that aren’t expensive
Having hobbies that are inexpensive helps your finances during tough economic times. They give you activities that you can continue to do without having to spend a lot of money during a recession. By developing these hobbies while times are good, you can continue enjoying your activities during recession times. This keeps things normal for you when others are giving up their expensive hobbies.
The time to prepare for a recession is before one happens. Use these tips to help recession proof your finances before a recession hits.
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1. The more debt you have, the more pressure you will experience.
2. It is much easier to follow a written budget than it is to just say “I’ll watch my spending”
3. Debt elimination requires reduced spending.
4. Reduced spending is temporary:only until your debt is gone.
5. The more time you have before purchasing a big ticket item, the smaller the amount that must be saved each month to acquire the item.
Article: 5 Spending Habits That Lead to Debt
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