Recession Proof Your Savings

Recessions often bring about company layoffs, hiring slows, and rises in unemployment. Loss of income or an unexpected car, medical, or home expense can create a financial hardship for those without a contingency plan. Creating a financial plan includes building up savings that can be used to cover emergency costs and survive economic hard times. Additionally, having access to cash during a recession can put you in a better position to improve your finances over the long term.

Emergency Fund

If possible, consider expanding your emergency fund in preparation for a recession.  Strive to tuck away enough money to cover at least three or more months’ worth of essential expenses. By setting aside money to pay for unexpected expenses in preparation for and within a recession, you can avoid credit card debt or taking on high-interest loans. Even if you already have debt prior to a recession, an emergency fund can help you avoid taking on more debt.

Live Within Your Means

Learning to live within your means is beneficial not only when the economy is good but also when it is not. Why? Because spending less money than what you bring in each month means you can use the money left over to work toward your financial goals and build your savings fund. Money parked in a bank account is safe even during a recession as long as your financial institution is federally insured. This mindset of living within your means makes it easier to find ways to reduce spending during a recession, even when you are faced with the increased costs of essential expenses like food and gasoline.

Limit Debt

Carrying a credit card balance not only increases the amount of interest you will have to pay but also extends the time needed to pay the balance in full. As outstanding debt increases, availability to access cash in the future decreases. In preparation for a recession, consider paying down high-interest rate debt first. This includes not only credit cards, but also personal loans and adjustable-rate mortgages nearing or at the end of the fixed-rate interest period.  

Avoid Lifestyle Creep

It is possible to enjoy life while at the same time finding a financial balance. Lifestyle creep occurs when spending on nonessential expenses increases as income increases. One way to avoid lifestyle creep is to stick to a budget. By budgeting a percentage of funds to savings, the percent saved will go up as your income goes up. This additional money saved can be used to pay down debt, increase your emergency savings fund, and help you reach retirement and other financial goals.