Worried about a recession? No one knows exactly when one could hit, but history tells us we can expect more in our lifetime.
A recession is characterized by a decline in economic activity, caused by reduced spending. When a person or family reduces spending, it’s good for them. But, when everybody does it, that’s bad news for the economy.
A recession is marked by job losses, which leads to less income and a greater reliance on credit cards. Some people sell off their investments, which drives down stock prices.
What can you do to recession-proof your finances? Act now and follow these 6 tips so you’re not left vulnerable when the next recession hits:
1. Spend Less Than You Earn
The first and most crucial step in recession-proofing your finances is spending less than you earn.
That means making a budget and sticking to it. You need to keep tabs on your spending, so you know where your money is going. And if you’re overspending, looking for ways to cut back.
“Help me stop being poor!”
The *only* way to save money is to spend less than you earn. That means you need to decrease your expenses or increase your income.
We want to help you do both.
Join our FREE Simplify Money Workshop to learn the fundamentals of growing wealth. Because when you can spend less than you earn, your money has no choice but to grow. You will build your savings and pay down debt.
What’s more? We’ve got a bunch of free money-hacks to share with you:
- Hacks to lower your monthly bills
- Hacks to spend less on debt
- Hacks to start investing
- Hacks to increase your income by $20/month (with no extra effort)
This workshop has everything you need to accomplish the cardinal rule of personal finance: keep your income over your expenses.
Join our free 5-day Simplify Money Workshop, and start growing your wealth today.
Capitalize on Savings with Capital One Shopping
If you want to spend less, but don’t want to buy less, check out the free Capital One Shopping browser extension. It automatically compares online products across hundreds of sites to see if you can get it for a lower price…
It also applies coupon/promo codes at checkout so you get a better price. What’s more, you can also earn Shopping Rewards (Shopping Rewards can be redeemed for free gift cards).
Capital One Shopping offers many ways to save money and time. Download the Capital One Shopping for free now and start saving now.
- Related: How to Make $200 in a Day
2. Save for Emergencies
When you spend less than you earn, you will have money to save. And your first savings goal needs to be an emergency fund.
It’s not sexy, but an emergency fund gives you security. Here’s the thing: Unexpected expenses ARE going to come up. In a recession, that could mean a job loss.
If you don’t have at least $1,000 ( but preferably a few months of expenses) chilling in a savings account, how will you weather the storm? With credit? If you think you can’t afford to save, I guarantee you can’t afford the debt. So, what are you waiting for? Build your emergency fund already.
Trust me, having money tucked away for a rainy day tomorrow is worth the sacrifice today.
Get Started with a CIT Savings Builder Account
Your emergency fund needs to be secure and accessible. That means no investing in the stock market and no locked-in CDs. That said, you still want as high of an interest rate as you can get.
The CIT Savings Builder account is an optimal tool for building an emergency fund because of its interest rate structure. The best rate (the “upper tier”) is reserved for customers who deposit at least $100 per month or maintain a $25,000 balance.
You only need $100 to open the account, and you’re rewarded for consistently saving. See the banner below for the current APY and open your CIT Savings Builder account today.
- Related: 7 Bad Money Habits to Break in 2021
3. Establish a Side Hustle
Establishing multiple income streams is a smart idea for two reasons. The first is the extra money increases your spending and saving power (I recommend focusing on the saving part).
The second is in a dicey economy, multiple income streams also give you financial security and peace of mind. If you lose your full-time job, you have a financial cushion AND the ability to continue earning some income while you look for something new.
You can become a blogger (granted, this is a long-term strategy), find work as a virtual assistant, or become a freelance writer, editor, or proofreader. None of these strike your fancy? There are other avenues to find a side hustle.
Steady Your Finances with the Steady App
Are you among the millions of Americans who love working remotely and want to earn some extra cash? If so, download the Steady app to find freelancing work to supplement your income.
When you sign up for the Steady app, it will connect you with on-demand jobs compatible with your skills. Simply create your profile, and you’ll set yourself up to find work that suits your schedule.
Some of the benefits of finding work through Steady is you get to:
- Work from home
- Work when it’s convenient for you
- Seek full-time or part-time opportunities, and
- Apply for remote or nearby jobs.
What are you waiting for? Sign up for the steady app, start applying, and make some extra cash.
4. Destroy Your Debt
If you want to recession-proof your finances, debt has got to go.
When any portion of your future income must go toward debt, it puts you in a dangerous position during a recession. What if you lose your job? Your emergency fund and your side hustle can support you while you shift gears. But, if you’re saddled with huge debt payments, you’re in trouble — especially if we’re talking credit card debt.
After you have an emergency fund, the goal is to pay off your debt as quickly as possible. But you need to be smart about it. Look for ways to minimize your interest costs so your payments go further and destroy your debt faster.
Minimize Your Debt Payments with a Balance Transfer Credit Card
If you have credit card debt, you likely pay 15% or more annually in interest. That’s crushing because you can’t use that money for anything else. You might be able to reduce your interest costs substantially with a balance transfer credit card.
Credit Land is an online resource for finding the best credit card for your needs. Search Credit Land for the card with the best balance transfer offer, like 0% for 18 months. After you apply and are approved, transfer your existing high-interest balances to that card and pay it off within the time frame. That way, your payments attack the principal instead of getting eaten up in interest charges.
5. Monitor Your Finances
As you start to put all the pieces in place to recession-proof your finances, be sure to keep track of your finances. You don’t know if you’re spending less than you earn unless you monitor it. You can’t allocate money for an emergency fund or for debt payments unless you know what’s coming in and going out.
In short, tracking your finances is essential. Online banking and financial tools, like apps and spreadsheets, make it easier than ever. Review your spending on a weekly or monthly basis. If you’re part of a couple, make it a date (jk, but only sort of).
Reuse and Repurpose
When you monitor your spending, you can’t ignore where you waste money. Get resourceful and look for ways to reuse and repurpose stuff you already have to cut down on purchases.
Spending a lot on cleaning supplies? That worn-out sweatshirt could make a bunch of cleaning rags. Have vinegar in the kitchen? Dilute it with water for a cheap and effective cleaning solution.
6. Invest for the Future
Last but not least, a surefire way to recession-proof your finances is to invest for the future. There are no guarantees in the market, but invested money usually grows over the long term. When your money is making money, you increase your net worth and become more financially stable.
After your emergency fund is in place and you have a plan for your debt, you can invest the extra money you find when you get serious about tracking your finances. And if stock prices do fall, that just means your money buys more shares.
Need help getting started? I know just the tool.
Make Investing Easy with Acorns
There are two main reasons people don’t invest:
- They think they can’t afford it.
- They don’t know where to start.
Acorns is a user-friendly (and cheap!) investing tool that solves both problems. In about five minutes and for as little as $1 per month, you can have your investment account up and running with an expert-built, diversified exchange-traded (ETF) portfolio. Bam!
As for finding the money, Acorns can help with that, too. When you link your credit and debit cards, Acorns automatically rounds up your purchases and invests the spare change in your portfolio. You never miss the money, but it really adds up. Plus, you can schedule regular automatic contributions in amounts that work for your budget.
Save more money! Read these next…
- The Top 9 Essential Dave Ramsey Tips for 2021
- 7 Things Frugal People Never Buy (and you shouldn’t either)
- Destroy Debt With These 7 Habits
Want more life hacks? Check these out…
- Dealing with Stress? 7 Habits of People Who Are Always Stress-Free
- If You are Living on One Income, Here’s 43 Frugal Hacks to Help
- 7 Hacks to Make You a Better Grocery Shopper
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*Capital One Shopping compensates us when you sign up for Capital One Shopping using the links we provided*
Sandra Parsons is a freelance writer specializing in personal finance, travel, and health & psychology. Her work has been featured on sites like Club Thrifty, MoneyTips, and Credit Knocks. She also freelances for Wooster Media Group LLC. Sandra lives in Eastern Canada with her husband and son.