We’ve all heard it: a recession is on the way. Recessions happen every so often, and are pretty much inevitable, but luckily they aren’t forever. Although this reality might be a frightening one, Upgrade and VantageScore have tips that will help you prepare your finances for this unavoidable situation. With the right preparation and commitment to staying realistic, you will have the ability to take on the recession without breaking a sweat.
Develop a practical plan
The first step in preparing for a recession is to create a plan for if, or when, the recession hits. Take the time to assess your finances and map out a strategy for what you and your family should do in the time of an economic decline. The best way to do this is to plan for the unexpected. What would you do in the case that you lose your job? How would this impact your day-to-day living? What steps should you take in the event that the worst happens? Keep in mind these questions as you generate a plan to help you stay afloat during a recession.
Build your emergency fund
Building an emergency or savings fund is critical for circumstances like a recession. Prioritizing saving is important in case of unexpected expenses. Having an emergency fund will give you the extra space you need, so that you won’t have to tap into funds you need for day-to-day living expenses. This will help give you peace of mind and the freedom to focus on putting your money towards other important areas, such as financial debt.
Work on increasing your credit score
As you probably know by now, having a higher credit score allows you more opportunities and leveraging capabilities in the financial world. Ensuring that you have a higher credit score before a recession takes place will give you an extra “cushion” in the case that you need to apply for a loan, buy a car, or even open up a new credit card. Of course, it is always best to make sure that your credit score is in tip-top shape, but intentionally working to increase it could be even more beneficial in an economic decline.
Pay off (or down) your debt
Debt is a burden that hinders many people in many circumstances. With a potential recession on the horizon, paying off (or down) your debt will allow you to concentrate on other components of your finances and not leave you worrying about outstanding balances. While you can, set aside money to pay off your credit cards
, student/personal loans and any other debt that you might have incurred over the years. In the long term, this will leave you some breathing room in your overall budget.
Stick to a budget
Creating a budget can be fairly easy, but actually sticking to it is a different story. The key to sticking to a budget is as simple as being cognizant and living within your means. Be realistic about how you allocate and spend your money! Take the time to properly assess the difference between your needs and wants, build a budget and be diligent about adhering to it. Sometimes, you might have to forgo something that you really want, but you will be thankful that you did in the long run. A solid budget can even help to improve your credit score!
Unfortunately, we cannot know for certain when or how exactly the recession will hit. For now, all that we can do is take the necessary steps to properly brace for what might happen. Following these tips to prepare will help ensure that a recession doesn’t take too hard of a toll on you or your finances!