There has been a lot of speculation as to whether 2023 will see a recession. Whether it comes to fruition or not, there is a growing concern for people who are already struggling with rising affordability costs, interest rates increasing and inflation. If you have been wondering what steps you can take to help prepare you in the event of a recession, we’ve put together a few tips that you may find helpful.
If you have looked into any financial advice, they will likely tell you first to build up an emergency fund. Having an emergency fund will help give you peace of mind in the event of an emergency. From unexpected home maintenance, car maintenance, job loss or injuries, having something unexpected come up can completely derail your finances. An emergency fund will help keep your regular expenses on track, even when those unexpected events happen.
So how much should your emergency fund have?
There’s plenty of advice out there that suggests a month or two of income, a certain percentage of your annual salary, or a month’s worth of essentials. There really isn’t a magic number for how much your emergency fund should have, as long as you are comfortable with that number.
If a recession is looming or you feel nervous about the future, adding more to that emergency fund never hurts to provide that extra bit of support if needed. This will hopefully give you more peace of mind as a result.
With interest rates rising across the country, it’s time to review your debt and look at exactly how much that debt is costing you. Focus on paying off debts with the highest interest rates first. Continue to pay your minimum payments on all debts, but you can focus on one at a time, starting with the one with the highest interest rates. Once that is paid off, you can put that into your next highest debt, and so on. This is known as the waterfall effect. If you feel like your debt overwhelms you, consider reaching out to a financial advisor to discuss things with you and help you develop a plan.
Generally, people get a sense when their spending has gotten a little bit out of hand. In times of economic uncertainty, it’s a good idea to review your spending habits and determine which expenses, luxuries and habits are serving you and which you can reduce. Those funds can then be reallocated to your emergency fund or pay off some of that high-interest debt. Take a particularly close look at all those hidden expenses you often forget about, like subscription services you no longer use, take-out, or impulse purchases.
There is nothing wrong with treating yourself from time to time, so if you are more comfortable setting a budget for fun, entertainment, or other hobbies that enrich your life, you can work that into your monthly finances. Otherwise, you may want to consider downsizing or eliminating certain expenses that don’t add value to your life.
If you feel you are already stretched to the max but still want to reduce recession anxiety, one actionable step you can take is to diversify your income. Picking up an additional job, working extra overtime or developing more passive income through your investments are a few ideas you can consider. The last several years have become the age of the “side hustle,” where freelance work, passive income and multiple jobs have become a more desirable choice for those who are willing to put in extra effort to secure their finances. Fortunately, with the internet, more options are available if you want to capitalize on your skills.
If you are an investor, consider different ways to diversify your investments. For example, many investors turn to Real Estate because it yields higher returns and has less risk than traditional investment routes.
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