After the last great recession, the last thing millions of Americans wanted to do was think about going through such turbulent times again. But when dealing with the economy, a recession occurrence is not a matter of if there will be another, but a matter of when will the next one hit.
This is why multiple people are putting safeguards in place to help ease the pain of the next recession.
This article is going to show you practical ways you can get yourself ready in time for the next recession:
Track Your Expenses
When things are going well, odds are you pay little to no attention to how much you are spending and where you are spending it. Usually, regardless of how much you spend during the month, there is often enough left to ensure all the necessary bills are paid.
Tracking your expenses allows you to know where your money is going so you can curb the wasteful expenses. In a recession, the last thing you want to do is spend money wastefully. If tracking your expenses manually seems too tedious, today there is a long list of apps that can help you track expenses.
Reduce Debt as Much as Possible
When the economy is doing great, you probably have a great job with an even better salary and bonus making it possible to meet all your debt repayment obligations without having to compromise on your vacation time. You may even find yourself spending a little bit more on your credit cards each month and carrying balances.
However, a practical way to be in a good place when a recession hits is to clear your debt as much as possible. Being in a lot of debt when a recession hits may mean you get a pay cut or laid off and that it’s even more difficult to keep up on your minimum payments.
Increase Your Value Proposition
According to the Bureau of Labor Statistics, the great recession saw unemployment hit a high of 10% in October 2009. And although that may seem like a high number, it also means that 9 out of 10 people were able to keep their jobs.
To ensure you are not on the chopping block at work when the next recession hits, strive to increase your value proposition at your place of work. Some options include learning new skills or increasing your workload to prove your versatility in the office.
Create an Emergency Fund
Before there is even a recession, it is essential to have an emergency fund that makes it easy for you to access cash should the need arise.
According to Tamra Stern, a financial planner and director of Wealth Management at Main Street Research: “Your emergency fund is money you have set aside for unplanned expenses. Whether you take a salary cut or you have to transition between jobs, make sure you have an emergency fund to weather the transition.”
If you find it difficult to save on your current income, you can ask for a raise, especially if you haven’t had one for a long time. Or, you can consider a side hustle such as driving for Lyft or Uber, or being a dog-walker.
Improve Your Credit Score
It is easy to take your eye off the ball when everything is going as it should be. Sometimes you may feel like it would not hurt to pay the month’s bills a little late thinking that since it does not affect your overall lifestyle, it does not hurt altogether.
However, what many people don’t know is that this singular act can be damaging your credit score and that is the last thing you need during a recession. Lower scores mean you may not be approved for the loan you really need or the line of credit you have a good reason for opening should you find yourself in a pinch where an emergency fund doesn’t do enough for you.
Revamp Your Portfolio to Appropriately Show Risk Tolerance Levels
The best time to ponder about your risk tolerance level is before the market crash occurs; not after it happens. For instance, people who are close to retirement and have 90% of their portfolio in stocks should think about appropriating a considerable chunk of their portfolio to fixed income to prevent being stranded should the market hit a low point.
And to those who may be too late to pull out their funds from the market before it crashes, if possible it is best to wait out the recession. However, your best bet is to consider hiring a financial advisor if you feel overwhelmed by the entire situation.
Think Carefully Before Borrowing
When in a recession, the last thing you may want to do is to take out a loan. This is why financial advisors advise that you make sure you can completely repay the loan and the accompanying interest. If it is necessary to borrow, you’ll want to make sure your credit is in the best shape possible, and take the time to shop around for the best interest rates.
Make the Necessary Changes to Your Income Tax Withholding
With the 2016 tax year, the IRS issued 111 million federal income tax refunds averaging $2,860 per individual. For 2017, the agency said over 70% of filers got access to refunds as well.
What this means is that a lot of tax paying citizens provide an interest-free loan to the IRS during the year and receive the money back when their returns are filed.
In an economy where cash-flow is not a problem, getting back $2,860 may not be that big a deal. However, in a recession, that sum could make all the difference when it comes to repaying debt or paying bills or school fees. And should you decide to receive the refund, all you need to do is fill a form W-4 and hand it over to your employer.
Don’t Stop Investing
There is a common saying which goes ‘buy low, sell high.’ Although this saying is common, during a recession, people tend to do the exact opposite, selling off stock or other assets bought at high prices for next to nothing.
For many people, reviewing your portfolio during a recession can cause severe pain and heartaches. However, if you have a significant long-term plan in place, you should not worry as much about changing strategies. There are also many low-risk investments available through different banks. If you’re in good financial shape, then these low-risk investments may possibly help you get through the next recession.
If your credit is still damaged from the last recession, give the credit specialists at Lexington Law Firm a call today. With over a decade of experience, we have helped millions of clients remove inaccurate, unfair, and unverifiable information from their credit reports.