If there’s anything we’ve learned from the past year, it’s that anything can happen, even when we least expect it. We weren’t expecting a global pandemic or the economic downturn that followed, and it was a difficult time financially for many.
Looming recessions can seem like a daunting prospect, whether you’re just starting out in your working life, you have a family to take care of, or you’re gearing up for retirement. While we can’t always control when and where economic recessions happen, there are some things you can do to better prepare your finances for events like these. Here are some tips for recession-proofing your finances.
Pay Off Your Debts
Prioritize debt reduction now to help put you in the best position to weather a recession. Pay off your credit card, tackle student loans, and have a plan in place to take out your auto loan even quicker than planned. The less debt you have, the fewer monthly payments you’ll have to contend with if your income is cut or eliminated with layoffs.
Save Up An Emergency Fund
An emergency fund is your first line of defense against unexpected life changes and financial emergencies. Most experts recommend having a savings account with three to six months of living expenses stashed away. This should be untouchable except in the case of emergencies, giving you the cushion you need to keep paying your bills if you lose your job. It gives you the time to find more work, without feeling the stress of impending eviction or foreclosure.
Live Within Your Means
Think critically about what you can afford, and establish your budget when times are sunny and bright. When clouds start to gather, you’ll be grateful that you lived within your means and were able to save. Can you really afford that expensive car, or would you be better off with something more economical that came with smaller payments? What home fits within your budget, and which is a reach? Asking the hard questions now can help you stay afloat during a recession.
Establish Mid-Term and Long-Term Savings
Maybe you’re hoping to retire early, or you’re saving for a down payment on a house. Those mid- and long-term savings goals are a huge boon during an economic downturn. Anything extra you have saved beyond your emergency fund can help you get through hard times.
Diversify Your Assets
You don’t want to have all of your money in one place, whether that’s a savings account, a home, or shares of a single stock. Diversification can help you keep an even keel no matter what comes your way. If the real estate market tanks but you also have investments in the stock market, you don’t lose everything you have at once (and vice versa). Protecting yourself through diversification is one of the simplest things you can do to help your situation during a recession.
Give Your Credit Score Some TLC
Take a look at your credit score, and see what you can do to help it out. When times get tight, you might need to apply for a loan that you didn’t expect, and the higher your credit score, the lower your interest rates and the more likely you’ll be to get approved. As an RMCU member, you get free access to Savvy Money, a credit-monitoring tool that helps you identify what you can do to improve your credit. Take advantage of it, and get ahead of your credit for times of need.
For more help on getting your finances in order, talk to your local RMCU representative, and check out the rest of our blog here.
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