A recession could be in the very near future, and if it happens there’s unfortunately, very little that anyone can do to change it. The only thing we can really do amid worries of an economic downturn is to prepare for it, which means recession-proofing our finances as best we can — the sooner, the better.
Live Below Your Means
To “live within your means” means that what you spend each month is less than or at least equal to the amount of money you bring in each month. For many people, it’s a lot easier said than done.
Once you know how much you make, you can focus on reducing your spending to fit your income. If you don’t have one already, create a budget to plan your expenses and use it to keep your spending on track. If you’ve already tried budgeting and it didn’t work, try it again. Often you just need to make some minor changes to your budget to get it to be effective.
If you want to keep the process simple, try a method called “backward budgeting.” Write down your income, then start subtracting each expense you pay each month. If you get to a negative number, then you’re spending too much and need to cut back.
Boost Your Savings
Saving isn’t always the easiest but your first savings goal might be to have some money set aside for emergencies – this will allow you to handle unexpected bills and events without leaving you in debt.
Steward-Smith recommends trying to get three months’ worth of expenses together and putting it into an easy or instant access account. The simplest way to do this is by saving what you can afford on a monthly basis.
You could also use your ISA allowance – some are easy access, so you’ll be able to withdraw money when you need it.
Pay Down Debt
It’s crucial that you pay down any outstanding debt — more specifically, high-cost debt, such as your credit card balance — to create some breathing room in your budget.
As the coronavirus has demonstrated, economic downturns can often lead to job loss. If you’re worried about job security, paying off your obligations might bring you more peace of mind.
Prioritise credit card debt, then turn to other types of loans, such as mortgages or auto loans.
Create a Worst-Case Scenario Plan
This planning for the worst-case scenario shouldn’t scare you, it is something to prepare you for the pressures of the unknown. Usually, these scenarios can be described as extremes, and while they’re unlikely, they can have a catastrophic impact on your finances.
Master or Learn a New Skill
Job security is a big concern during a recession. Unemployment rises as companies lay off workers, and slow hiring can mean getting a new job proves challenging. Bolstering your credentials, adding to your skills, and networking can help position you to manage your career through a downturn.
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