Keep reading for some tips on how to prepare no matter which way the winds blow.
Take stock of your finances
First, take a good, hard look at your money. How much money do you have in the bank? What’s in your savings account? How much debt do you have? It could be helpful to start a spreadsheet with all this information — your checking account balance, savings, retirement funds, essential bills and non-essential spending — so you can compare your finances across different categories.
That should make it easier to figure out if your current budget is working for you, or if you need to make changes. For example, if you want to save more in case of a recession, look for ways to spend less on your nice-to-haves.
Pay down debt
If the economy turns for the worse, it’s better not to be weighed down by debt that could drain your bank account. High-interest debt, such as credit card debt, could eat into your savings if you don’t pay it down or pay it off completely. Having too much debt could also keep you from securing good terms on a loan.
Always aim to pay your bills on time and pay at least the minimum amounts each month, if not the full amount due.
If you’re struggling to manage your debt, consider consolidating it with a personal loan from a bank, credit union or online lender. However, it’s important to understand the pros and cons of debt consolidation before you apply for a loan. Debt consolidation lets you roll multiple debts into one fixed monthly loan payment, optimally with a lower interest rate than what you’re paying now. But depending on the length of the repayment term, you could end up paying more interest in the long run. The convenience of smaller monthly payments may be worth the extra cost to you over time, however — it really depends on your financial situation.
Keep an eye on your savings
Your savings are a crucial part of preparing your finances, especially in case changes in the economy result in job loss, lower income or other changes affecting your budget. Most experts recommend saving three to six months of living expenses to cover household costs and bills, but six to nine or even 12 months might be a better target if you’re concerned about supporting yourself and your family during a rocky economic time.
If you haven’t done so already, create an emergency savings fund specifically for urgent situations, too. Keeping this money separate from your checking and regular savings accounts ensures you won’t touch it unless you absolutely need it.
Setting up automatic transfers from your checking to your savings account can make it easier to get into the habit of saving. If your employer offers an emergency savings account benefit, you might be able to automatically direct a portion of your paycheck into your emergency fund.
Take care of your credit
If you need to take out a loan during a tough financial time, having good credit could go a long way toward helping you get approved and secure better terms. Pay your bills on time and make sure you’re keeping your credit card balances low. Don’t apply for credit you don’t need, and if you do need to apply for a loan, try pre-qualifying first, which will help you check your eligibility without hurting your credit score.
Invest in your retirement
Just because you’re tightening your budget and prioritizing your savings doesn’t mean you should overlook investing in your future. While the economy may feel uncertain, you still want to set yourself up for as secure and stable a retirement as possible.
If you have a 401(k) account through your employer or an IRA account on your own, keep making your monthly contributions. Take advantage of any employer matching to boost your 401(k) savings.
In addition to a retirement account, you may want to keep investing in stocks, bonds and other investment opportunities. If you aren’t sure how to choose and manage your investments, reach out to a certified financial or investment advisor who can help.
Take steps now to prepare for the future
While you probably don’t have a crystal ball to tell you where the economy is headed, you can still look out for your finances. Take time to prepare to the best of your ability by budgeting, paying down debt, keeping an eye on your savings, monitoring your credit score and investing in your future.
Hopefully, these steps will help you navigate the ups and downs of life more confidently, no matter what comes your way.
Notice: Information provided in this article is for informational purposes only and does not necessarily reflect the views of bkreader.com or its employees. Please be sure to consult your financial advisor about your financial circumstances and options. This site may receive compensation from advertisers for links to third-party websites.
