Given the signals for an economic recession looming on the horizon, most people in the United States need to know how to prepare for the worst financially. While it is true that recessions are difficult to face, it is also true that everyone has within his or her power to prepare for the worst and try to improve his or her situation. Here’s a look at some tips to prepare for a recession:
- Pay down debt. The best forms of defense, in the case of a bad economy, include the following; Reduction of costs in anticipation of a downfall. This is a gimmick that can be used to free up cash which can be used to finance other important activities in the company. Focus the balance transfer on the cards with the highest interest rates or transfer those balances to other cards with lower APRs.
- Build up savings. The amount of emergency savings varies depending on the source but most agree that it is best to save 3-6 months’ worth of expenses. Open high yield on-line savings account and use that money to live off of in case you lose your source of income. Pay a portion of paycheck directly to emergency savings so that the account is replenished as often as possible.
- Trim discretionary costs. How much have you spent this month? What is mandatory and what is luxury? Make conscious decisions to reduce spending on food, going out, traveling, shopping and much more. Reducing those variable expenses will enable you to remain afloat after a pay cut or, even a job loss. Some of these include quitting on cable television services by either downgrading on the television subscriptions or eliminating services that are not used frequently, and switching to cheaper cell phone services.
- Consider extra sources of income. Be it ‘night and ‘weekend’ driver for a rideshare app or freelancing person grabbing an occasional side hustle, welcome side income. That the money coming in would be used to pay for food and fuel or the mortgage amongst other uses.
- What strategies should be adopted for reviewing investment asset allocation and possible hedges? As volatile investors in the stock market use this period to check their investment portfolio and retirement accounts, it is advisable to diversify the investment by having some recessionary hedge like Treasury bills and commodities.
Getting the mental and the financial self-ready for change in economic status is a good strategy that will enable average Americans to minimize the effects and consequences of turbulence and locking down the livelihoods as soon as the storm hits. What type of money management action will you take today?