Up to 30 percent if the countries in the world will enter recession in 2023 according to estimates. So, how do you navigate such choppy waters? We take a look below.
Taking stock of priorities financially
One of the toughest things about a recession is the fact you don’t know what is going to come next, and when you can expect things to get better. This makes it a good idea to be clear on where you are with your finances.
How much cash do you have on hand?
How much can you get if you need it?
How much debt are you carrying (student loans, credit cards, etc.)
What are your basic monthly living expenses, including shelter, food, transportation, health insurance, and childcare?
Are there any major life events coming up that will force you to spend a significant amount (for example a baby, wedding, or retirement)?
This is the right time to start understanding your expenses and anticipating your needs over the next 6 months. If you prepare yourself well for a job loss, recession, or other financial hurdles, you will have some money that you can spend on expenses for 3-6 months, and also a nest egg for your retirement – with an emergency fund set up, there is light at the end of the tunnel.
If you currently don’t have enough funds to cover your expenses for three to six months, then you need to make this your financial goal. You can start by knowing where your money is going and then come up with a budget.
If you want to create a budget, make sure your first figure out your total income, which includes your spouse’s income too. You also should factor in side hustles that are giving you money. You should include all income, including other sources like child support.
The next step is listing your expenses, which includes mortgage payments or rent, groceries, utilities, medical needs and pharmaceuticals, home and auto maintenance, childcare costs, insurance premiums, and debt payment. You should also include regular expenses, which include payments you make annually. When you add up all your expenses, you can know if you are spending the same amount you earn, less, or even more. You may consider moving home to manage costs. A first charge bridging loan can help make this a reality.
The goal is prioritizing your essential expenses and ensuring you know the minimum amount you can spend monthly – this can help you determine whether you can cover your minimum expenses if your spouse losses their job.
A good budget adapts in preparation for a recession. You can focus on cutting down on non-essential expenses like cable, clothing, and entertainment. While it isn’t realistic to cut out your discretionary spending, you should know how to differentiate wants and needs. Look for some areas that you have overspent on. Tyr to look for what happened. Maybe you don’t have the money to use for your retirement or down payment for now, but this is okay in the short term.
Once you get used to reviewing your finances and finding problem areas, you are off to a good start.
Focusing on debt repayment if possible
You may worry about paying debts in the coming months like student loans, utilities, and credit card bills. If you have lost your income, you might find yourself foregoing paying one or more of those bills which makes it important to know the ones that you need to pay.
If you experience a loss of income, it becomes a challenge to pay every bill on time or in full. This is going to have a big impact on your credit history.
During such times, it is important to do everything possible to make sure your credit score remains intact, but this isn’t possible during a recession. You have to prioritize the way you pay bills so that the cash covers as many debts as possible.
Make sure you have paid your mortgage or rent on time and in full. You can end up facing eviction or foreclosure if you fail to pay.
Making your car payments, especially if you use it to go to work.
If your income has reduced, rec out to your student debt lender and ask them for a hardship allowance. This is going to buy you a couple of months and you don’t have to make the payments.
Making at least your minimum payments on the credit card. If this is not possible, reach out to your credit card company and find a way of working out a payment plan. When you do this, the creditor is going to freeze the account and you can’t make any more purchases using your card.
Keep up with medical debts if possible, however, you should do that after meeting other debts first. If your employer is offering you health insurance, you are going to get health insurance coverage even if medical bills are going up. If you are paying for your own insurance coverage because you are employed or for other reasons, make sure you make your premium payments on time so that you don’t risk a canceled policy.
If you are finding it hard to make the payments, reach out to the creditors and ask for a hardship allowance. This can sometimes include interest-only payments on your debt. Another thing is a payment into forbearance.
You can also visit your credit union or local bank for a personal loan. There are many online lenders that can lend you money. There are employers offering their staff a short-term loan program when times are hard.
If you have been making payments on time, you can talk to the credit card company or lender so they can lower your interest rates. There are many major utility providers offering programs that can let you pay the bills later or provide other hardship assistance. You can ask because you will never know the help you can get without asking.
Considering career opportunities currently and in the future
One thing that comes with a recession is high unemployment rates. This is why you should look at how tough economic times affects your career. You need to have a backup plan if a layoff happens.
Refresh the connections you have in your professional network. You should consider your co-workers and also those outside your current employer. When you have established relationships at different organizations, it gives you an advantage in the job market. You can reach out to your network by offering to meet them in person for lunch or coffee or reach out via social media.
This is also a good time to start updating your resume and other tools to use when job hunting. You should do this ahead of time because it makes things easy down the line. Do you have opportunities for additional training or continuing education? One of the best ways you can invest in yourself is by expanding your skill set. This is going to benefit you a lot even if you keep your position during the recession.
For those who are at risk of layoffs, it may be a good idea to get a side gig like working for a reshare application or freelancing with a online side hustle in the social media management sphere. Getting a new stream of income is going to help in case of a layoff. It is also going to help you build up your emergency savings while you are still employed.
Bolstering emergency funds ahead of time
If layoffs and job cuts are looming, you should put cash in your emergency funds. You are going to need it when your income stops flowing. You should give out expenses like takeout and delivery.
When you have an emergency fund, using it is a decision you shouldn’t take lightly. A good reason to use some of your emergency cash is ash is losing your job or living on a reduced salary. As soon as your situation becomes more stable, you need to rebuild your emergency fund as soon as possible. If you fail to rebuild your emergency fund, you may be forced to look for more dire options like applying for a home equity line of credit or withdrawing money from your retirement account.
Making an effort of staying on top of your financial situation
It is hard to know when a recession is going to happen, but what you can do is take proactive steps to make sure you are prepared well. Take the time to learn more about personal finances because it is going to make things easier for you. Financial education has become very important because it lets you take control of your finances and work towards financial freedom.
Aneta is a staff writer covering money content, including personal finances, savings accounts, taxes, loans, mortgages, credit cards, interest rates and insurances for FintechZoom. Contact: [email protected].