Following the news can be alarming, especially when topics arise concerning the economy and the financial future. Whenever the markets take a dip or interest rates ride a roller coaster, it can have a devastating effect on your finances. Unfortunately, you can’t always foresee financial chaos or know how long a recession or uncertain economic conditions will last, so it is best to have a proactive approach to securing your financial health. As statistics show, 40% of Americans aren’t in a financial condition that can weather a recession. It’s never too late to get your finances in order, protecting yourself from whatever fate may hold.
1. Start Reducing Debt
The most important thing you can do with your finances is to pay down your outstanding debt. Start with the high-cost debt, like credit cards, in order to give your budget a little breathing room. One of the biggest concerns for anyone during a recession or economic uncertainty is the loss of employment. Without job security, your financial situation is in jeopardy. Paying off outstanding obligations (no matter how big or small) can bring you some peace of mind when you find your income reduced. Even if a recession isn’t looming, it is always a good practice to get rid of debt. Prioritize what you owe, looking first at revolving credit lines that tend to have higher interest rates, then move on toward your mortgage and auto loans. There are several great sites online that can help you formulate a plan for paying off debt.
2. Secure Your Money
Most people aren’t stuffing cash under their mattresses in an attempt to keep their money safe, but there is still a need to keep an eye on your money. Opening a savings or checking account will give you a place to keep your money, and there are now options for completely digital banking. Credit Sesame, well-known for its services to monitor consumer credit scores, has extended its service options include online banking. With a Sesame Cash account, your money is kept secure in a financial institution backed by the FDIC. Not only this, but there are fee-free accounts that let you keep an eye on your finances every day, in addition to being able to track your credit score. With Sesame Cash, there is also an incentive program that pays you cash for improving your credit score.
3. Save, Save, Save
The threat of lost income or higher living expenses due to economic downturns can make it really difficult to live comfortably or even paycheck to paycheck. It is always in your best interest to save money well before any crisis happens, but you should definitely designate an emergency savings fund. Add a contribution to this fund as a part of your budget, making it an obligation. While it would come in handy whenever the economy shows signs of faltering, you could also rely on these funds for major car repairs, a medical crisis, or a home repair. Paying down your debt is a priority, but if you don’t anything in savings, you will just end up in more debt if you have to finance or borrow money to get out of an emergency situation. Try to get an emergency account going that has one month’s worth of living expenses. Continue to work on paying off your debt, and once that is accomplished, work your way up to at least six months of cash reserves.
4. Stop Making Purchases
To get on firm financial ground, you need may need to take drastic but swift action. Even though you may not be in a financial crisis right now, start evaluating what areas of life you could cut back on. You may be in the habit of eating out two or three times a week, but consider making a change to just once a week. Saving $40-$50 a week adds up to a couple of hundred dollars a month. You could either put that money towards your debt or stash it into your savings account. Sit down and make a list of all your monthly expenses. Identify the things that are a necessity, and label the things that are considered discretionary incomes. These are things you don’t need. You could eliminate subscription services that aren’t used very often, or you could give up your daily latte in favor of brewing a cup at home. Cutting back on the extras can get your spending and saving on track, making it easier to live within your means.
5. Stay Focused
Trying to save money and stay on track can get frustrating, especially when the unexpected happens. Kids need to go to the doctor or your tire needs to be changed. Until you have a solid savings account going, riding through financial hard times can be overwhelming. It may take finding supplementary income or making some major cutbacks in your discretionary spending, but the end results will be worth it. Sit down with your family or partner and put your financial goals out in the open. Keeping everyone on the same page with finances helps with accountability, but it also makes the lifestyle transition easier.
Hearing that the economy might be taking a turn or that the stock market is on the verge of collapse is alarming news. Trying to make sure your finances can ride out the storm will be stressful if you haven’t taken steps to insulate yourself against disaster. With these five areas, you can better prepare yourself to stay on positive financial ground when the unexpected occurs.