If you’ve been following the latest financial news, it might look like the U.S. economic expansion is coming to an end. But as the talk of recession returns, it instills fear in financial markets and everyday Americans, it casts a spotlight on just how complicated predicting downturns are even for those who are trained to identify them. With that being said, if the U.S. economy and your financial burdens are keeping you up at night, it’s never too soon to ensure that your finances are well-equipped to weather any storm.
Here are seven tips, as recommended by experts.
1. Pay down any possible debt – It’s essential that you pay down any outstanding debt! More specifically, high-cost debt, such as your credit card balance. The purpose of this is to create some breathing room in your budget.
2. Increase your emergency savings - Job loss can make it difficult to pay your day-to-day expenses. To ensure you maintain a peace of mind if anything were to happen, make sure you have a savings!
3. Identify ways you can cut back on spending - Before a downturn begins, it’s a good idea to go through your monthly expenses. Identify which items are “wants” and which items are “needs”.
4. Live within your financial means - Experts typically recommend spending no more than 30% of your net income on necessity items.
5. Focus on the long haul and plan ahead - After addressing your savings and paying off your debt, your next worry when thinking about a potential downturn might be your investments. The thought of the markets plummeting might make you scared that you’ve lost all your earnings after years of hard work.
6. Identify your risk tolerance – It might not be a bad idea to work with a financial adviser on identifying your risk profile. That includes identifying how much risk you can afford to withstand and the amount of risk you’re willing to take on.
7. Continue your education and build up skills - But to recession-proof your life, one of the best investments you can make is pursuing an education. During recessions, the unemployment rate for those with a bachelor’s degree or higher is much lower than for those who have a high school education or less.