Relentless market volatility and fears of a recession are causing many people to feel uneasy. When the recession finally hits home, some economists are warning of dire consequences such as a net reduction in discretionary spending and slow economic growth. According to the American International Group (AIG), the recession is a natural cycle that can cause serious challenges to an economy. These challenges include debt management problems, unemployment and underinvesting. A recession can easily trigger cancellation or reduction of debt, which means big losses to the creditors. Even with a debt reprieve, essential bills like rent and utilities must still be paid.
Failure to pay household bills can cause debts to go-to collection. The consequences of this action include damage to your credit scores and difficulty obtaining favorable interest rates on loans. Underinvesting is a common problem during the recession, since many people and businesses are forced to tighten their budgets and scale down investment altogether. The decision can also affect long terms of individual investment strategies like saving for college or retirement. Unemployment is always closely linked to recessions. Employers often lay off workers to reduce losses. A loss of a job can lead to increased levels of stress, loss of income and ultimately, financial instability.
How to recession-proof your finances
Although a recession is never easy to predict, being prepared for one is essential in ensuring a stable financial future. According to Bankrate, here are 4 strategies to recession-proof your finances:
1. Pay down debts
Outstanding debts should be paid down promptly, beginning with high-cost debt. You can start by paying off high-interest credit card debts to free up your budget and enjoy peace of mind. The other debts to consider in your repayment plan include mortgage and student loans.
2. Grow your emergency funds kitty
Emergency savings can come in handy in case of a job loss. You can use the emergency funds to keep yourself going as you look for another job or new opportunities. Personal finance experts suggest setting up sufficient reserves to cover three to six months of living expenditure.
3. Live within the budget
Living within your budget is a time-tested strategy that guarantees financial security. Some frugal minds suggest spending no more than 30% of your net income. The strategy can work best if you maintain a monthly budget that helps track spending. The budget should cater to all basic expenses such as rent, car insurance, and groceries. In the meantime, discretionary spending on issues like cable and dining should be curtailed as necessary to cap runaway spending.
4. Advance your education and skills
The other proven strategy to stay financially secure during a recession is pursuing an education. Studies show people with a bachelor’s degree or higher attainments are less impacted by recession-induced unemployment compared with those with high school education.
Get help when you need it!
Achieving a stable financial future is a desire of every individual. If you need debt or financial advice, the experts at Derby Advisors are always ready to help. The experienced team of advisors will always act in your best interest and follow up on your progress to the desired conclusion. To get in touch with Derby Advisors, simply call the toll free number 1 800 207 1756