Worried about what your financial situation will look like in a year — or even in a few months — from now? With all the concerns about economic growth, it’s reasonable to be worried about a potential recession.
But the key is to start preparing now so that you’re in the best position with your money, in the event that a recession does hit in the next six to 12 months.
As a business Ph.D. and fintech entrepreneur who runs a multimillion-dollar company , I urge everyone I meet to remember that a recession can provide opportunities to get your finances in order .
To boost your chances of surviving an economic downturn, here are my top 18 recession money rules:
1. Build a 12- to 24-month emergency fund. In a stable economy, experts recommend saving for three to six months’ worth of living expenses.
But Catherine Valega, a CFP and wealth consultant, suggests that workers aim for 12 to 24 months in case they get laid off.
“I do tend to be more conservative than many because I have seen three to six months in emergency expenses, and I don’t think that’s enough,” she told CNBC in May.
2. Minimize high-interest debt. See if you can negotiate your credit card interest rates by calling your card issuer. Think about how you can make a strong case — maybe you’ve been with them for a long time or have a good history of on-time payments.
If a rate reduction isn’t an option, consider transferring your debt to a lower interest rate card. Or you can consolidate your debts to lower your monthly payments and help free up capital that may be needed in the event of an emergency.
3. Prepare to borrow money. During a recession, many people need to borrow money to get through difficult times — and that’s okay. But when interest rates are high, lenders will take a hard look at your credit score, making it more difficult, if not costlier, to get approved for loans.
So create a plan to boost your credit score. Making payments on time and keeping balances low are the most important factors when it comes to building credit.
4. Keep your credit accounts active. Now is not the time to panic and cancel your credit cards. The age of your accounts is a factor in your credit score. Even if you transfer balances, keep your credit cards open.
According to Equifax , credit scores from 580 to 669 are considered fair; 670 to 739 are considered good; 740 to 799 are considered very good; and 800 and up are considered excellent.
5. If your mortgage is close to term, renegotiate now. The average 30-year fixed mortgage has nearly doubled since last year. No one knows for sure if this is the highest that rates will rise, but locking in a lower rate now can protect you if they do.
6. If you have low-interest mortgage debt, stay put. Many people believe that paying off debt during a recession is a smart idea. But I don’t advise that. It may be better to make minimum payments and keep the cash accessible.
Why? Because if the worst does happen and you end up losing a source of income, the money you’ve saved can help recover expenses until you regain financial stability.
7. Buy in bulk if you can afford to. Anything that is a cost savings today that you’ll need and use in the future will save you even more money later on, if inflation continues.
Non-perishable staples like toilet paper, toothpaste, shampoos and soaps, or even canned foods make great bulk purchases.
8. Opt for frozen produce. If you always buy fresh fruits and vegetables, consider buying frozen. Often the products found in the freezer section are just as healthy , will keep longer, and cost significantly less. 9. Buy from generic brands. Items such as garbage bags, lightbulbs, paper, makeup, shampoos, pet food, canned goods and other groceries can often be purchased at a lower cost and generally offer virtually the same product. 10. Consider the cost of gas. If you are shopping or running errands, calculate how you can take on multiple tasks in one outing instead of multiple trips. If there is no-cost delivery on a product you’re buying, opt to order it instead of driving to pick it up. 11. Build your emergency fund before you invest in the dip. Don’t start investing for the long-term until your emergency fund is set. A loss of income can […]
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