The global economy is constantly changing. With inflation at an all-time high and talks of a recession brewing, it’s important to ensure your finances are secure. But how exactly do you go about doing that?
Protecting the money you work so hard for is easier said than done, but in this article, we’ll equip you with valuable tips to help you stay afloat during these tough economic times.
Establish an emergency fund
An emergency fund should be your first line of defense against financial hardship during a recession. Start by setting aside money each month in a savings account to build up a cash reserve to help you pay for unexpected expenses, such as unemployment, car repairs, or health care costs. A general rule of thumb is to save about three to six months of living expenses.
You can set up automatic transfers to your savings or money market account to help make it easier to build up your emergency fund. A high-yield savings account can provide a higher return on your hard-earned money than a traditional one. Many banks offer these accounts, usually free of monthly or annual fees if you meet a minimum balance.
Reduce discretionary spending
When money is tight, it’s important to focus on the essentials and cut back on discretionary spending like eating out or excessive shopping. Take a hard look at where your money goes each month to identify areas where you can make cuts. You can opt for at-home workouts to save money on your monthly gym membership or limit daily trips to the coffee shop for that iced matcha.
Pay down outstanding debt
High-interest debt can be a major financial burden during a recession, so it’s best to focus on paying off as much debt as possible. Americans saw a 15.25% increase in the average credit card debt from 2021 to 2022. There are a few ways to tackle your debt head-on to avoid being a part of this statistic this year, including the following:
- Debt consolidation: This involves combining multiple debts into one loan, hopefully giving you a lower interest rate and smaller monthly payments.
- Balance transfer credit card: Balance transfer credit cards allow you to transfer any existing credit card debt to a new card with a lower APR.
- Avalanche method: The avalanche method prioritizes debt with the highest interest rate first, saving you the most money over time.
- The snowball method: The snowball method tackles your smallest debt first to show quick progress and encourage you to continue.
Find ways to increase your income
Consider finding ways to increase your income, whether through a side hustle or asking for a raise at work. You can also look for freelance opportunities online, pick up a part-time job, or find gig work that aligns with your schedule. With the help of the internet, there are plenty of ways to make extra income from the comfort of your own home or car.
Some examples include the following:
- Tutoring online
- Delivering groceries
- Driving for rideshare services
- Taking paid online surveys
- Selling digital products
- Renting a room in your home
Invest with caution
The stock market will always come with some degree of risk, but during a recession, that risk increases significantly. Consider investing only what you can afford to lose and diversifying your portfolio before taking on any additional risk. Always research potential investments before diving in head-first and seek professional guidance before making major investment decisions.
The bottom line
By making wise financial decisions like creating an emergency fund, reducing your spending, paying off debt, increasing your income, and investing cautiously, you can survive a recession and come out the other side with your finances intact. Having a financial plan can help you weather any economic storm—no matter how rough things may seem.
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