Surviving a recession is difficult, but it can be especially tough if you do not already incorporate money-saving strategies into your finances. You may think it is impossible to save money during a recession.
However, there are steps you can take. If you are able to, creating an emergency fund and diversifying your investments are two great ways to prepare. However, more drastic measures are necessary once a recession is already in full-swing.
Establishing a specific budget and sticking to it is the most effective way to save money when the economy is in a downward spiral. While you may not be able to prevent certain losses from occurring, you can control how much money you spend each month on both practical and unexpected purchases. Learning how to save properly during stable economic times allows you to make adjustments more easily if and when a recession occurs.
To prepare for a recession, it is beneficial to establish an emergency fund in advance that is separate from your conventional savings account. An emergency fund is used to supplement the day-to-day living expenses if you lose your job during the recession, or if your pay decreases for any reason.
Typically, people aim to amass anywhere between three to six months of their income in an emergency fund in order to prepare for a financial disaster. This may seem steep for those who are struggling to make ends meet, but setting aside any amount of money for an emergency fund is better than nothing at all.
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Once you have an emergency fund, you can use it to pay for everyday expenses during a recession, rather than relying solely on credit cards once your cash funds are diminished. When you add to your credit during a recession, it becomes more difficult to dig yourself out of financial hardship once the economy returns to normal.
Without the funds to pay down your balance, you inevitably lower your credit score and begin to accrue high interest. The funds placed into your emergency account provide you with a level of cushion until your financial stability is restored.
To save money during a recession, it is essential to establish a budget. Even if you are not directly impacted by the recession, a change in your employment can happen at any moment. By creating a monthly budget and sticking to this plan, you can increase the amount of money you save from one week to the next. The most important items to include on your budget are:
These often take up the largest portion of your budget, but other expenses such as car payments, student loans and phone bills are also often pricey. These items make up your mandatory monthly expenses. Once these are outlined, any money leftover can be put into savings.
If you have been wanting to upgrade your phone or purchase a new computer, these expenses must be shelved until the recession is over. Even if you have added money leftover in your budget, it is important to save it for unexpected expenses, such as a doctor’s visit. Frivolous spending during a recession is inadvisable, as this eats into your budget and prevents you from affording necessities as they arise.
Adding an extra source of income is another way to boost your savings before and during a recession. This allows you to supplement the income you receive from your primary job position. If a recession hits, and your hours or pay is reduced, this side income may become a necessity.
There are numerous ways to add income during a recession, depending on your circumstances. For example, some people may choose to acquire a second job, whereas others may rent out a spare bedroom in their house. If you have extra space, you can even list it on websites that offer lodging for travelers.
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If you do not want to commit to a second job but need to increase your funds, look for freelance opportunities. Freelancing can provide either steady or sporadic income depending on the amount of time you devote to completing these gigs.
Graphic designers can add one or two extra projects per month for a boost to their total income without committing to a secondary job. Freelance opportunities are available across various platforms, from bookkeeping to writing and transcription work. This allows you to look for a gig that puts your current experience to good use.
Many people make the mistake of only investing their money in the stock market. In the event of a recession, these investments are hit the hardest. This is because when the economy suffers, the stock market suffers along with it. Many investors end up losing a significant amount of money because of this.
To avoid a debilitating loss to your investments, it is vital that you learn to diversify your portfolio before a recession hits. That way, you can maintain some of your investments as a safety net if you end up losing money in the stock market.
Investing in real estate, bonds or international opportunities diversifies your portfolio, which can better protect you against financial hardship. For example, you may choose to invest your money in a condo development to provide yourself with more stability, either in the United States or overseas.
By investing in international projects, you are create a line of defense against a downturn in the U.S. economy. Even if your stateside investments are lost, you are still able to maintain benefits from the assets you are establishing overseas. When placing your money into real estate, take your time before you commit to one opportunity over another. That way, you can ensure that you are making a strong investment.
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