On average, the United States has experienced a recession every four years since 1900. Given the inevitability of economic downtowns—particularly during this time of instability caused by the coronavirus pandemic—it’s in your best interest to know how to protect your finances in the event of a recession.
#1: Establish an Emergency Fund
It’s a good idea to have a savings account with three to six months of living expenses so if a recession hits and your job is put in jeopardy, you have something to fall back on.
In order to build up your emergency fund, start small. Deposit a portion of your monthly income on a recurring basis. Try to make deposits automatic so you don’t have to remember to do them on your own.
#2: Get Ahead of Debt
Debt is what puts people into financial holes, particularly with credit card balances or loans with high interest.
These are two main ways to attack your debt, including the following:
- Snowball method: Target the smallest debts first. Some people find it more rewarding to get rid of many small debts rather than one large one.
- Avalanche method: Target the debt with the highest interest. This can help save you more money in the long run.
#3: Track Your Spending
When we pay for most things digitally, it can be easy to lose track of how much we have spent in a particular week or month. Make a budget on a spreadsheet or a piece of paper and make it easily accessible, such as by bookmarking it on your computer or taping it onto your fridge.
See where all your money is going and if there is anywhere you can cut back, such as on a subscription service you rarely use.
#4: Diversify Your Skills
It’s always a good idea to enhance your skillset. The labor market is constantly evolving, in both good and bad times.
In good times, learning new skills can help you get a promotion or land your dream job. In bad times, it can increase your chances of finding another job quickly if you get laid off.
#5: Don’t Stop Investing
The most important thing to keep in mind right before and during a recession is that it will come to an end. The economy will bounce back and, when it does, it’s a good idea to make sure you’re in a position to take advantage of every economic opportunity.
As such, it’s unwise to panic and stop contributing to your investment accounts including your 401(k) and IRA. You may continue to benefit from these investments, particularly in the long-term.
Struggling with Finances During This Time? We’re Here to Help
If you need assistance with financial matters including estate planning, tax law, bankruptcy, and more, our team is here to help. We offer a wide range of services that can be tailored to your unique needs.
Contact Pearson Butler today at (800) 265-2314 to schedule a consultation with our team.