It’s natural to get nervous about your finances when you start seeing the word “recession” mentioned in the headlines. Prices go up, and wages might not, and suddenly, managing bills feels more like a juggling act.
While economic downturns can leave you feeling unsure of your budget, there’s a lot you can do to protect your wallet and your sanity. Taking a few intelligent steps now won’t only prepare us for any bumps ahead, but it will also bring us peace of mind.
Whether you can already feel the pinch or want to stay a step ahead of the game, this guide gets you on the road to recession-proofing your finances. Let’s get started!
Strengthen Your Emergency Fund
Your savings are your lifeline during economic turmoil. The typical result of recessions is massive job losses, reduced hours, or pay cuts, and without a solid emergency fund, you could be hard up for funds. As Phil McGraw wisely said, “Don’t wait until you’re in a crisis to come up with a crisis plan.” That way when things are out of the ordinary, you already have money to keep your stability.
First things first, evaluate your current savings or bank account. If your emergency fund is non-existent or very low, you focus on building it up incrementally. A slight increase can add up over time.
Look for high-exchange savings accounts or other lower-risk opportunities with higher returns. For example, some online savings accounts now pay interest rates above 3%, making your money grow faster.
If you can’t seem to squeeze money toward your savings goal, it’s time to dig a little deeper. Reduce unnecessary items like eating out or paying for extra streaming services. Spend smarter to free up cash to save.
Prioritize Essential Bills
Not all bills are equal when going through a rough financial patch. The housing, utilities, food, and healthcare should never be on the back burner. These are all things you’d want to prioritize when it comes to maintaining your security because if it comes down to these essentials being cut back, there’s a good possibility that other areas of your budget will be compromised, too.
Otherwise, if you miss paying critical bills, things can quickly get worse. For example, when a bill is formally presented to you — i.e., on presentment — it’s a demand for payment. Understanding the presentment meaning in this context is essential because it represents a formal request by creditors, typically signaling the urgency of payment. Failing to heed these can result in penalties, service disruptions, or even legal actions. You can avoid such complications by ensuring that your essential bills are taken care of first, so to speak, and keep you on solid financial ground.
If money is tight, talk to service providers or debt collectors about temporary relief options. Many companies offer hardship programs or flexible payment plans when the economic outlook dries up.
For those who need more severe adjustments, intermediate steps such as moving in with family or renting out a spare room could offer enormous reductions in housing costs. These are not ideal long-term solutions, but they may provide the relief you need during a recession.
Get Creative with Income Streams
Getting income only from one source during a recession may sound too risky. Diversifying your income streams is vital to alleviate some of that pressure. Many additional ways to earn money don’t always require a considerable time investment.
If you’re considering taking on a side hustle, it’s worth considering something that works around your current schedule. Ride-hailing or food delivery gig economy platforms are some of the flexible options. However, if you can’t work outside the home, find income opportunities online, like paid surveys, tutoring, or freelance work. While these options won’t get you rich overnight, they serve a purpose and could offer extra cash when you need it.
Getting creative with where and how you can make money can give your budget some breathing room. With some extra income, you’ll have more resources to facilitate essential expenses or increase your savings.
Reassess Your Debt Management Strategy
Debt can feel particularly heavy during a recession, especially when you carry high interest balances. Managing your debt will help keep it from being an excessive source of stress in bad economic times.
Your first step is to review your existing debts. When paying off high-interest credit cards, consider combining that debt with lower-interest options, like a personal loan or balance transfer card.
That can bring your monthly payments down and help you stay on schedule. However, for everyone who finds it challenging to make their payments, contacting the creditors and asking to reduce the payments or interest rates is also an option. When times are hard, creditors usually are willing to negotiate payment terms.
If you have several debts you can’t keep up with, you might consider getting help from a credit counseling agency. Debt management plans are an option for relief that isn’t as damaging to your credit score — non-profit credit counselors can help you decide if this is a good option for you and can assist with finding other relief options.
Create a Sustainable Budget
A well-structured budget is one of the best ways to see you through an economic downturn. Creating a budget doesn’t sound fun, but it helps you see exactly how your money is being spent, so you know there are no holes unless you create one. However, when money is tight, this becomes important.
The first step to building a sustainable budget is knowing where your money goes each month. Break down your income and expenses into housing, food, transportation, etc. Use budgeting tools or apps to track these expenses and make the necessary changes. The idea is to try to get your budget in balance, with money going to the essentials while still allowing for some savings and reductions on discretionary spending.
Staying consistent with your budget can keep you from overspending and piling on debt when a recession hits. Let’s take the example of the 50/30/20 rule—50% of income to the needs, 30% to the wants, and 20% to the savings. This simple framework will allow you to live well now while still preparing for the future.
Final Thoughts
These steps may help lower stress levels, defend your bank accounts, and help you stay ready for anything. Since every person’s financial situation differs, you can change these strategies to fit your specific circumstances. Finally, remember that these tips cover a strong base, but if you want to achieve your long-term goals, consider a little help from a professional, and they will recommend a suitable plan.
