Financial markets have natural ups and downs. When performance in one or more sectors falls, the effects can ripple across the entire economy. If an economic downturn lasts over several months, this may signal a looming recession.
What does a recession mean for you? Recessions often correlate with fewer job opportunities and a rise in unemployment. In addition, individuals and businesses often become hesitant to spend their money. Thankfully, you can take steps to diminish the impact a recession has on you.
When it comes to recession preparation, you want to be proactive, not reactive. Protect your financial standing and security during a recession with these three financial practices:
Decrease Credit Card Debt: Most Americans average over $2,000 in credit card debt. Monthly credit card payments and recurring interest on your card balance will take a chunk out of your income. While this may not feel noticeable during a healthy economy, credit card debt can quickly become a stressful burden during a recession. In order to keep your credit score strong, make an effort to pay down your credit card debt now, beginning with the highest-interest cards first. The smaller your debt, the less interest you will pay.
Increase Savings: When a recession hits, you want to have as much cash on-hand as possible. This will help you avoid the headache of financial instability and keep you from building up credit card debt all over again. An emergency fund is an important financial tool during times of economic prosperity; it is especially valuable to have on-hand during times of economic slowdowns! Your emergency fund can help you pay bills and afford necessities if the effects of a recession impact your income flow.
Income Versus Spending: A common response to a recession is a halt in spending. While it is important to live practically and stick to your budget, if enough individuals decrease their spending habits, this can exacerbate the recession itself. Our economy is greatly fueled by consumption; businesses are run by people too, remember! A strategic way to preserve your spending power is to increase your income. An additional income source, even for a few hours a week, can help boost your savings and stand firm during any scenario.
Don’t let a recession stall your financial progress. Learn more ways to stand firm during a recession at our blog.