It has only been a decade since the Great Recession has ended, and we are yet to fully bounce back from it as a nation. However, experts are already predicting that another recession might occur as soon as 2020. The certainty of a coming recession is still up for debate. But whether or not it will truly happen, it’s always smart to prepare yourself and your loved ones. Here are some of the ways to prepare for financially difficult times.
Hoard your pennies
There is no telling for how long the coming recession will last. Are you confident that your current savings will last for six months, let alone an entire year? Don’t worry if you aren’t, because it’s never too late to start saving up.
Start stocking away small amounts of cash to give yourself a financial cushion, and keep in mind that every penny matters. This will give you an emergency fund in case you get laid off during the recession. Set up an emergency fund goal, and adjust your budgeting according to it.
Figure out how much of every pay-check has to be set aside to reach the emergency fund goal within a maximum of twelve months. There are mobile applications, such as Acorns and Stash, that can help you save more money.
Invest in insurance
Make sure that your loved ones are taken care of during a recession. If you have dependents who rely on your earnings, you should have adequate life insurance and disability insurance. Keep in mind that group disability insurance through your employer may not offer enough coverage. When the recession forces your company to lay you off, you will lose coverage, as well, and the same issue applies to life insurance provided by your employer.
If you decide to buy individual life insurance, one of your best bets is term life insurance. If you have young children, a 20-year level term policy would be ideal. Even if the recession does not happen, a term life policy would still prove a great investment. You will not be as healthy as you are right now when you get older, and locking in lower rates while you are in good health will save you a lot of money.
Pay off your debts
Credit card balances are evil. If you fail to pay off your balance every month, the interest charges will continue to eat away at your income, which is detrimental during a recession. Along with other debts, such as mortgages and loans, paying off your credit cards now will free up money that is better spent at getting you through tough times.
Create a budgeting plan that prioritises your debts. Put your credit card on ice and trim your expenses. A debt consolidation loan is also a great option, as taking out one at a lower interest rate is better for your savings than burning your money paying interest.
Recession is coming. And while it’s debatable if it really is on the way, staying prepared is never a bad thing. Recession or not, hoarding your pennies, investing in insurance and paying off debts are great financial practices that allow you to pave the road towards a financially secure and comfortable future for yourself and your loved ones.