5 Ways To Recession-Proof Your Finances During A Financial Storm

It's been more than 15 years since the Great Recession and the resulting economic fallout. While some people may have recovered, others still feel the effects of that time. And while some people may wait for the economy to collapse again, there are ways to protect yourself and your assets if it happens. Here's how you can recession-proof your finances to prepare for a recession and other financial emergencies.

Pay Off More Than The Minimum On Your Credit Cards

The first step to paying off your credit card debt is paying more than the minimum monthly payment. Paying only the minimum amount each month will take you longer to pay off your balance. When you pay only the minimum, most of your payment will go toward interest, not the principal reduction. This payment method can increase your debt, and the time it takes to pay off your credit card(s).  

Build Up Your Emergency Fund

Starting an emergency fund is the most important thing to do to prepare yourself for tough times. It is your safety cushion, and as such, it should serve as a cushion. Having a solid emergency fund will provide you with a sense of financial security and help you deal with unforeseen circumstances such as job loss, car trouble, medical issues, etc.

So, where do you start? You can start small by saving just $5 per week (or whatever amount works for your budget). Eventually, however, this fund should grow large enough so that if an unforeseen event causes a strain on your monthly budget, the money from the fund can provide temporary relief. This will give you the time you need to find a more permanent solution, such as reducing your debt or finding a new job, while you wait for things to get back on track. Typically, it is recommended that you save between three-to-six months of total monthly expenses for your emergency fund. Any amount is better than none, but you should aim for several months as recommended.

Another way to save for an emergency fund is to set up an automatic transfer from each paycheck into a savings account. Most banks offer this service at no cost, allowing you to save without thinking about it or having any money left over at the end of the month. Those who would call themselves spenders should especially consider this as an option.

Where should you keep your savings? In an interest-bearing savings account at a bank or credit union, where money accumulates interest over time. In an emergency, you won't have to pay any fees or taxes on the money in a savings account. Additionally, if your funds are FDIC insured, your money is protected for up to $250,000 per depositor. Knowing that your money is FDIC insured can provide peace of mind that your hard-earned savings won't be lost or decreased during an economic downturn.

Don't Ignore Signs Of Financial Trouble

Be aware of signs of financial trouble. Examine your financial situation and see if there are areas where you could make some changes. If you decide to make some changes in your life, try thinking about the things most important to you and then figure out how much money it will take to accomplish those things.

Make a budget and stick to it. One of the best ways to save money is to figure out how much you need each month and ensure you only spend that amount. There are many helpful tools online that can help you create a budget. Go over your monthly expenses carefully. Ask yourself about any useless or unnecessary expenses that you may have. Are there subscriptions you're not using that you can eliminate? Canceling an unused subscription releases the money, which can subsequently be put into an emergency fund or savings account.

Add An Extra Source Of Income

Weathering the storm when one stream dries up is easier if you have more than one source of income. Additional sources of income could be anything from selling something online, taking on freelance work, or even renting out an extra room in your home.

If you have unused items still in good condition but taking up room in your home, why not sell them online? Numerous websites will assist you in finding buyers for things you no longer need. eBay is probably the most well-known resale site. Still, there are sites like Craigslist, LetGo, Facebook Marketplace, and Mercari where you can list items for sale without paying upfront fees. Simultaneously you declutter and add the money you earn to your emergency fund.

Make Your Savings Work Harder

Think about how to invest your money safely to weather a recession. Consider gold and silver coins; these are usually considered safer investments because their value is directly related to the price of the metal rather than fluctuating with economic trends. Other investments that hold up well during a recession are land, art, and fine wine, as they are physical assets whose values depend on their usefulness to buyers.

Choosing recession-resistant companies is important if you want to invest in the stock market. Consumer staples are a good choice because these products are necessary for everyday life, and people will continue to buy them regardless of the economic climate. Think of food and beverage companies such as Coca-Cola, Kraft Heinz, and pharmaceuticals. Other examples of recession-proof investments include real estate investment trusts (REITs), which fluctuate less than other stocks, and high-dividend stocks, which provide steady income.

Conclusion

In the case of a recession, it is crucial to be financially prepared to weather the storm. You can accomplish this by paying off more than the minimum balance on your credit cards, establishing an emergency fund, not disregarding indicators of financial problems, increasing your income, and maximizing the effectiveness of your savings. Having a solid understanding of your money and knowing what to expect under challenging times can enable you to weather any financial storm.