Imagine yourself enjoying your retirement. With enough savings and diligence, you'll probably be okay retiring around your 60's. According to Money Talks News, U.S. retirees usually bid their careers farewell at the age of 64. However, the Social Security's full...
9 Best Tips On How To Prepare For A Recession
Nobody enjoys the idea of their income plummeting or their finances being ruined.
But, unfortunately, here’s the deal:
The United States (as well as other parts of the world) are likely heading towards a recession in 2020.
(If we’re not already in one, as some experts think.)
So, let me ask you this:
Will your finances survive if/when a recession hits next?
(Here’s a hint: They will after you read this and make the 9 best money moves to prepare for a recession.)
What Is A Recession?
A recession happens when there is a large decrease in economic activity.
Or, in other words: You enter into a recession when there are HUGE drops in spending.
…Such as when the world is hit by a pandemic that causes people to lose their jobs, stay home, and stop spending money.
But, there is good news:
You can prepare your finances for a recession and rebound strongly.
Just use these 9 tips:
How To Prepare For A Recession In 9 Simple Ways:
1. Review Your Budget
To prepare your finances for a recession, start with the basics, such as your budget.
For starters, review your income and expenses to make sure you’re living within your means.
Then, create a zero-based budget to make sure that every cent you earn is being spent strategically.
Using a budget (like the zero-based budget) to help you spend your money on only bills, necessities, and savings will be HUGELY beneficial to you when a recession hits.
When preparing your budget for a recession, you also want to avoid unnecessary fees – like late fees on missed payments or overdraft fees.
To avoid this, use a resource like our Budget Boss Binder to track your bill pay, personal spending, and bank account balance.
Related Reads: How To Set Up A Zero-Based Budget For Beginners
2. Get Rid Of All Unnecessary Spending
That $5 you spend every morning on coffee and that $78 Target run are better spent in your savings account.
So, to get rid of your unnecessary spending, do these 3 things:
1. When you’re preparing your budget for the month, don’t account for personal spending. Pay your bills, buy your groceries, and that’s it!
2. Switch to Chime Bank to get rid of ALL banking fees (and get a $50 free gift)
3. Sign up for Trim who will scour your bank records to find subscriptions you didn’t know you were still paying for (and get rid of them!)
However much you save from these tips, move that money into your savings account to have on hand for the *hopefully unlikely* occasion that you are personally affected by job cuts or pay decreases due to a recession.
3. Stop Paying Off Debt (And Do This Instead)
Ok. I know what you’re thinking:
“I should stop paying off my debt?!”
And here’s the deal:
No. You should not stop making your minimum debt payments.
Instead, move the extra cash that you would normally put towards paying down debt into a savings account.
When a recession hits, you just don’t know when you’ll need large sums of money on hand, so make your minimum debt payments but no more than that.
There is a silver lining though:
Interest rates usually decrease during a recession.
So, you have 2 options to take advantage:
- Ask your lender to decrease your interest rate OR
- Consolidate your debt using a personal loan with a low-interest rate
Lowering your interest rates will decrease your overall debt, so it’s a win-win that you definitely should take advantage of when a recession hits.
4. Increase Your Savings
When a recession hits, you want to:
a.) have a well-stocked savings account, and
b.) have as much money flowing into your savings account as ever before.
So, if you don’t have one already, I highly recommend starting an emergency fund that would cover 3-6 months of wages.
To grow your emergency fund quickly, create a budget that automatically sends money to your savings account each time you are paid.
And, as I mentioned, get rid of your personal spending allowance and stop paying more than your minimum debt payments and put that extra money into your savings account.
Wouldn’t it be nice if your bills paid themselves and your savings account grew on autopilot?
Well, with this budgeting method, they can!
5. Ride Out Your Investments
But, here’s the deal:
Don’t panic and make rash decisions about your investments just because you read some article floating around on the internet.
Yes, your investments are going to take a hit during a recession.
But: They will improve as the economy improves. So, if you withdraw your investments now, you’ll be losing money. If you ride it out, you will see a better outcome over time.
And, better yet:
If you continue investing during a recession, you’ll be able to scoop up stocks at record low prices. Then, when things turn around for the better (as they always do), you’ll see large returns on your investments!
A great way to get started with investing is with the Acorns app.
Using your spare change, Acorns helps you build a portfolio of exchange-traded funds. All you need is $5 to get started here!
6. Earn Extra Money
Because consumer spending drastically decreases during a recession, you might be subject to lay-offs or reduced hours.
If you have multiple streams of income, you will fare much better during a recession.
To start bringing in extra income into your life, do these 3 things:
1. Start a Side Hustle – Side hustles are the perfect way to earn extra money. For instance, you could open an Etsy shop, start a YouTube channel, or rent out extra space in your home on Airbnb. Honestly, the possibilities are endless when it comes to side hustles – simply use a skill you already have and profit off of it.
2. Freelance – Another great way to profit off of a skill you already have is to become a freelancer. You could become a freelance writer, editor, accountant, and more. To find high paying freelance work, check out Fiverr, Task Rabbit, and Flexjobs.
Get started earning extra income ASAP. This money can fund your savings account for when a recession hits and/or be your safety net if you lose income due to a recession. It’s a win-win, always.
7. Reevaluate Your Interest Rates
I touched on this when we were talking about debt, but it is worth mentioning again: When a recession hits, interest rates usually take a nosedive with the economy.
You MUST take advantage of lowered interest rates by doing these 4 things:
1. Credit Cards – Reach out and ask your creditor to consider decreasing your interest rate to match current trends. If this doesn’t work, consolidate your credit card debt with a personal loan that has a low-interest rate.
2. Mortgage – Refinance your mortgage for a lower interest rate. You can get a quote from Credible in just 3 minutes without affecting your credit score.
3. Student Loans – Refinance your student loans for a lower interest rate with Credible.
4. Car Loans – If you have a car loan, work with your current creditor to lower your interest rate or shop around for better options.
Here’s the deal:
When you lower your interest rates, you’ll save tons of money in the long run – something that is invaluable when you’re in a recession.
8. Earn Cash Back On Purchases
Did you know how easy it is to earn cash back on purchases you’re already making?
Seriously, there are apps out there basically handing out free money.
Here’s how they work:
You shop at the places you love, they give you money back automatically.
Use these 3 cash back apps to save money (and make money) on everyday purchases:
1. Ibotta – Simply download the Ibotta app (and snag $10 free dollars), connect your debit/credit card, shop as usual, and earn cash back automatically on qualifying purchases. You can withdraw your earnings using PayPal or Venmo!
2. Rakuten (AKA Ebates) – Before online shopping, go to Rakuten.com. Then, enter the stores you wish to shop at and earn as much as 20% back on all your purchases. When you sign up today, you’ll get $10!
3. Dosh – Just like Ibotta, Dosh will give you cash back automatically for qualifying purchases. All you have to do is download the Dosh app, connect your debit/credit card, and shop as usual. You can earn cash back at grocery stores, restaurants, and more. Click here to sign up and score $5!
Don’t let free money sit on the table when you could be sending it back to your bank account without even trying.
9. Decrease Your Fixed Expenses
When a recession hits, you’re going to survive a lot longer when you don’t have as many bills to pay.
So, to prepare your budget for a recession, decrease your fixed expenses right now.
To get started, list out all of your fixed expenses. Next, create a game plan for how to decrease every single one.
For example, these are the things I did to decrease my fixed expenses (plus some other helpful ideas):
2. Begin paying your mortgage bi-weekly to pay it off quicker
3. Ask your landlord for a rent decrease in exchange for signing a longer lease (we cut $100 off our rent when we signed a 2-year lease!)
4. Get rid of cable (and WiFi if you have a mobile hotspot) (getting rid of both cable and WiFi saved us $140/month!)
5. Consolidate your credit cards into a personal loan with a lower interest rate (I saved $150 a month by doing this!)
6. Trade-in your current car (if you’re paying monthly for it) for a cheaper option
7. Refinance your car loan for a lower interest rate (doing this cut my car payment down by $75!)
8. Use Chime Bank’s free car insurance tool called Gabi to compare rates and switch to the cheapest option (this saved me $35/month!)
9. Use Trim to negotiate lower prices for your cable, internet, and cell phone bills
10. Refinance your student loans for a lower rate or sign up for income-based payments so you only pay as much as you can afford
11. Switch to Mint Mobile to decrease your phone bill by over 50% (seriously, they have plans starting at $15/month!)
As you can see, I saved $500 a month by taking a few hours out of my day to decrease my fixed expenses.
Trust me: It is well worth your time!
10. Chill The Fuck Out
When a recession hits, it is easy to lose your cool and start to panic.
But: Try your best to chill outtttt.
Because, here’s the deal:
When you make decisions based on impulse (because you’re freaking the fuck out), you don’t always think your decisions through.
You see, on impulse, you might end up withdrawing an investment that bounces back just fine — and then you’re SOL.
A recession will come and it will go. And it will be hard on some and harder on others. But, a clear head always makes better decisions, so take a deep breath and chill the fuck out before doing anything cray!
(Honestly, this is a great time to start meditating and practicing gratitude! There is always something to be grateful for, even when it feels like the world is collapsing in on you. Find those moments of gratitude and focus on them instead.)
This might sound crazy, but:
You’re gonna be hella prepared for a recession now that you read this post.
Simply take one step at a time and do the hard work now so you aren’t screwed later.
Download your free recession checklist by signing up for our resource library below!
you got this,
P.S. Was this post helpful? Consider buying us a coffee to show your love <3
Father’s Day is almost here, but how do you say “I love you?” Use these budget-friendly Father’s Day gift ideas to rock his world without breaking the bank.
Have a graduate in your life? Whether you are shopping for a girl, boy, best friend, daughter, or child, you will find tons of graduation gift ideas here!