Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors’ opinions or evaluations. Depending on who you ask, it’s not a question of if, but rather when, the United States will enter a recession in the near future. Certainly, many economic indicators are pointing in that direction.
While no one can say for sure what the future will bring, it’s best to heed the warning signs. Here are some of the best tips from Forbes Advisor and finance experts to help you prepare for a recession. Table Of Contents
Manage Your Money Wisely
Your chances of successfully weathering a recession are higher if your financial house is in order. If you’ve been taking a lax approach to your money, start with these essential tasks. 1. Create a Budget
Having a budget is money management 101, and something that can benefit every household. It gives you a “good sense of what it costs to run your life,” according to Sara Stanich, founder of financial planning firm Cultivating Wealth in Montauk, New York.
Budgeting doesn’t have to be difficult, and it can be accomplished in seven simple steps that cover the process of adding up your expenses and income and then reconciling the two. There are also multiple ways to implement a budget, so explore your options to determine which one appeals to you most. 2. Eliminate As Much Debt As You Can
As interest rates climb, so too does the cost of debt. And if you’re spending a large portion of your income on credit card and loan payments, that leaves little to save for a rainy day. Eliminating debt is an important part of how to prepare for a recession, and a debt snowball can be an effective method to use.
Of course, not everyone will be able to get out of debt before a recession hits. “If you do carry a balance, it’s good to (find) a low-interest, fixed-rate offer,” Stanich says. However, offers like this are typically reserved for applicants with very good credit.
Consolidating debt to a fixed rate loan may save money on interest and can also make for predictable monthly payments, which can help with budgeting during a recession. 3. Create an Emergency Fund
Recessions are often marked by job losses, so now is the time to shore up your cash reserves.
“Think about giving yourself [enough savings to cover] a couple of payrolls,” says Amy Mosher, chief people officer at Isolved, a firm providing workforce management solutions. If necessary, consider pulling back on your 401(k) contributions temporarily to build up an emergency fund . “It can relieve a lot of stress,” according to Mosher. Saving Money During Tough Times
Ideally, you’ll head into a recession with no debt and with a fully funded emergency account. But that might not always be possible. “You might not have time to build savings,” before a downturn, says Dustin Smith, senior vice president and financial advisor at Wealth Enhancement Group in Plymouth, Minnesota.
If you can relate, use these tips to rein in spending prior to a recession. 4. Pare Down Expenses
There are many ways to save money without affecting your lifestyle . Those strategies include shopping for less-expensive cell phone service, bundling insurance policies and using bill negotiation apps. Also, don’t forget all the services you signed up for but never use.
“Do an audit of credit cards for recurring subscriptions,” Stanich advises.
Many households pay for multiple streaming services, automatic deliveries and online or offline memberships. Eliminating a handful of these recurring charges could easily reduce your monthly bills by $100 or more. 5. Rethink Big Purchases
Money saving tips often focus on eliminating small expenses, such as a morning latte, but Smith says this approach can only save you so much cash. Instead, he asks people to consider whether they can skip a major purchase such as a second home or new car. “That’s [the equivalent of] a lot of cups of coffee,” he notes.
With a possible recession looming, think twice before buying something such as a boat or timeshare that will result in ongoing bills. Likewise, skip a luxury vacation or other expense that could wipe out your savings account. 6. Learn to Cook at Home
Food is often one of the largest discretionary expenses in a household budget. And much of the spending growth in this category is fueled by dining out. The federal Bureau of Labor Statistics found that American spending on food away from home—which includes takeout and […]
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