August 17, 2022
What we’ll cover:
Recession headlines aren’t exactly reassuring. So it’s easy to understand why many of us are worried about the possibility of things getting worse before they get better.
But here's the important thing to remember: Recessions don't last forever.
While we can’t control the timing of a recovery, we can be proactive when it comes to looking after our financial well-being.
Let's go over a few tips that could help you and your finances during a recession.
Having a cash reserve on hand to respond to emergency situations is especially vital during a recession. If you don’t have an emergency fund, consider putting some money away each month in a separate savings account. The general rule of thumb is to have enough to cover at least three to six months of living expenses.
Job security in a recession is never a sure thing. This isn’t meant to scare you, but to underscore the importance of being mentally and financially prepared for the unexpected.
You don’t want to find yourself in a situation (e.g., losing a job) where you have to scramble or take out a last-minute loan to cover essential expenses. An emergency fund can help you deal with potential bumps in the road without knocking you completely off course when it comes to your financial goals.
Bear in mind that it’s important to keep your emergency fund in an accessible, FDIC-insured account such as a traditional or high-yield savings account, so that you can withdraw the money when you need it.
Recession or not – it’s good to get into the habit of revisiting your budget to see how you’re spending your money every month.
Knowing which expenses are essential and which ones can be paused or eliminated could help you find more opportunities to save.
A budget can also help you stay on top of your debt. During a recession, it's more important than ever to continue paying them down on time. Remember, the quicker you can pay off debt, the sooner you can free up more of your budget for something else.
A recession already comes with plenty of stress, and the last thing you want is for your debt to grow while you’re trying to cope with other financial headwinds.
If you end up having to take out a personal loan to cover your expenses during a recession, you’d want to get the best possible terms. To do that, you would need to maintain a good credit score. This means paying your bills on time and keeping your credit utilization low, among other things.
Let your bank or financial institution know about any financial hardships you may be facing and see what flexibility they can offer when it comes to paying your bills.
Keep in mind missed or late payments get reported to credit bureaus and can hurt your credit score. So if there’s a way to work out a more flexible payment arrangement to avoid getting dinged, you’d want to do that as soon as possible.
During a recession, you might be tempted to pause your retiremetn contributions or change your asset allocations. We get it - in market downturns, it can be tough to resist the urge to do something. But the key to avoiding making investment decisions based on emotions is to take a deep breath and remember to focus on the long term.
However, keeping calm doesn’t necessarily mean you should do nothing in the face market turmoil.
What you could consider doing is review your retirement plan(s) and make sure that it’s appropriately diversified and not exposed to more risk than you’re comfortable with.
We understand that staying level-headed during a recession may be easier said than done. This is why you may want to reach out to your financial advisor to review your investments together. They can also talk you through any portfolio changes you may be considering.
We’re not talking about going out and finding a second full-time job (you work hard enough as is).
This tip is for those who have ever thought about taking on a side project for a little extra income. Perhaps, you’ve been wondering if you could make money off of your hobbies. (Is there a demand for cute cat crochets? Probably. )
Exploring these options can be helpful in two ways. First, it’s a chance to develop a new skill set. Second, if successful, your side project could provide a different stream of income.
If you don’t want to take on any extra work right now, you could also look at what networking opportunities are out there. Having some solid contacts can come in handy if you ever do need to look for a new job.
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