A Recession On the Horizon? Let’s Weather the Storm
With a potential recession looming, it’s time to learn how to prepare for a recession and provide yourself financial protection. Keep reading for more steps you can take to get ready.
August 19, 2022
There’s no shortage of news stories these days predicting that the next recession is on its way. While it may be too soon to say if a recession is in fact looming in the near future, they are an inevitable part of the business cycle and one will hit eventually. That’s why it’s a good idea to learn how to prepare for a recession.
By taking a few precautions, you can get back to living life, instead of stressing about all the scary headlines. Keep reading for more insight into what you can do financially to brace yourself for difficult economic times.
Reorganize your budget
First things first, it’s time to take a cold, hard look at your budget — both where it currently stands and where there might be some slack.
To start, make sure there’s room in your budget for the things you need to live and work such as housing, transportation, food and Wi-Fi.
Next, add debt payments and savings goals to your budget. Now is the time to prioritize your financial health over purchases you may want but not necessarily need. If you have a stable job with reliable income, paying down your debt can keep it from getting more expensive over time. If you have a real concern that a recession may impact your job, you might prefer to make minimum payments on debt and save as much cash as you can.
Spending discretionary money will be low on the priority list. If you're concerned about your job security, be conservative here. Making a list of services you're paying for but don’t necessarily need, like subscriptions, food delivery service apps and cable is a good way to see where your discretionary funds are going.
Canceling those services may free up some money in your budget. Remember, these expenses can always be added back, but it can be a good way to see what extras you do and don’t miss. These are short-term sacrifices to financially prepare for the worst.
Build and upgrade an emergency fund
Hopefully you won’t have any major emergencies in your future, but it’s best to be proactive and prepare for difficult times. An emergency fund can be useful when disaster strikes and can help you avoid taking on high-interest debt to cover any unexpected expenses. Plus, having some extra cash in a savings account could help you sleep easier at night when the future may be uncertain.
That being said, you may not want to be so aggressive with paying down your debt that you stop adding to your savings. It’s all about a healthly balance.
A good goal when setting up an emergency fund is to have enough saved to cover three to six months' worth of expenses. That way, if you lose your job you have time to bounce back without turning to high-interest credit cards or loans to stay afloat.
Need a push to get you started? You can set up an auto-transfer for each paycheck to build your emergency savings fund over time. The upside? Right now with higher interest rates, your basic savings account will pay you more.
Look for passive and new ways to earn income
When it comes to figuring out how to prepare for a recession, having an extra source of income could provide a sense of relief. You can only cut expenses so far, so earning more can make a big difference.
However, if you already work a lot of hours, it might not be realistic to take on a side hustle or to get an extra job. There are only so many hours in the day, and we all need time to rest and relax. So try to find ways to generate income without much extra work.
You might consider renting your car out on Turo, which is like Airbnb for cars.
You could list your home on Airbnb for extra cash while you travel or stay with friends or family. Sharing some of the earnings as a thank you for letting you stay with them is a nice gesture.
If you have a spare room in your home, you might also consider renting it out. With rents increasing at unprecedented levels, you might be able to provide someone with an affordable living situation that also helps you financially.
Pay down high-interest debt
Interest rates are going up, so some sources of your debt can become more expensive. Credit card interest rates are notoriously highl. Combine that with inflation and warnings of a recession and you could get pulled into a vicious cycle.
Luckily, there are tools out there designed to help. If you have credit card debt, consider Tally†, a popular debt payoff app that automates paying your credit cards using a lower-interest line of credit. This move can potentially reduce your monthly payment and make it possible to pay down your balance faster. As a bonus, if you need to save cash, it gives you a cushion to add to your savings. If you have to use a credit card to fill in the gaps, making on-time, minimum monthly payments can help keep your credit score from suffering. Tally automates this for you.
Now that you know how to prepare for a recession, learn more about how Tally can assist you in your efforts to secure your financial life! Tally is a credit card debt repayment tool offering a lower-interest line of credit that can help streamline your repayment process.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.