As prices for gas, groceries and other necessities consistently rise, talk of a looming recession has been making headlines. While no one can effectively declare whether a recession will occur, it pays to be financially ready for potential economic changes on the horizon. 83% of employed adults are worried about a recession.
Taking immediate action could be the best way to help mitigate the stress of these concerns. By taking steps to put yourself in the best financial position possible, you can weather a recession without depleting your finances. Here’s how to manage your personal finances during a recession
How to Maintain Your Personal Finances During a Recession
There are many steps you can take to start saving money or to avoid overspending. Use these tips to keep track of your spending and be more financially prepared in the event of a recession.
Open a Savings Account
Saving money is hard. Putting money in a savings account places it in a different place than the money you typically use for spending. This can make it seem inaccessible. However, a major benefit of a savings account is that there are few restrictions on withdrawals. This means the cash in your savings account is still liquid and can be accessed immediately if you need it. When choosing the right savings account for you, keep in mind that all savings accounts earn interest. Then, the one you choose could help you earn more personal finances during a recession.
Make Your Spending Count
Most people are painfully aware of the effects of high gas prices. Try to limit your pain at the pump by making every trip count. If you can pick up groceries on the way home from work, you can avoid spending the gas to make a separate trip. Many cities in Massachusetts are highly walkable and offer robust public transportation offerings. By taking advantage of these resources, you can save even more.
Get Rid of High-Interest Debt
As prices go up, credit cards come out. While credit is a valid resource to handle emergencies, racking up substantial credit card debt can be dangerous. Credit cards often have high-interest rates, which could put you in financial distress in the event of an economic downturn. When a recession may be on the way and interest rates are rising, it’s more important than ever to get rid of credit card debt. One way to do this is to get a low-interest personal loan to pay off your credit card balance.
Avoid the Costs of Unexpected Incidents to Maintain Personal Finances During a Recession
A recession won’t last forever. When preparing to live more frugally, it’s a good idea to step back and consider the necessities of your lifestyle. For instance, maintaining the value of your home is always vital, no matter the economic forecast. If you commute to work or live in a car-dependent neighborhood, your vehicle is also an important necessity. To effectively maintain these essentials, talk with your independent insurance agent to make sure you have adequate coverage.
Adding a comprehensive policy to your auto insurance coverage could mean the difference between having the cash to replace a windshield during challenging financial times. Even more importantly, the right home insurance coverage could make all the difference in whether you can afford to keep a roof over your head.
Bulk up Your Savings
A recession can quickly change your financial circumstances. By stockpiling savings while you have the money, you can put yourself in a healthy financial position to take care of emergencies if your finances take a downturn. If you don’t have an emergency fund, consider where you could cut back to save money. In addition to the savings you manage to build, consider what you’ll do if an emergency does arise.
Do you know where you’d get money if you needed an expensive appliance or car repair and didn’t have the cash to cover it? By getting a firm understanding of your options before an emergency arises, you’ll be less likely to make a decision that will put you in financial distress.
3 Things Not to Do With Your Personal Finances During a Recession
The actions you shouldn’t take during a recession are as important as what you should do. A poor financial decision in the months leading to a recession could make a critical difference in your financial situation during the economic downturn. Avoid these actions during a recession.
Assume New Debt
You may have been dreaming of getting a new car, and you might even be in a position to comfortably afford it. However, uncertain economic times mean your financial situation could change quickly. If layoffs or terminations occur at your place of employment, your ability to pay for your new purchase could be compromised. Thus, leading to credit issues and other financial distress that could be dangerous during a recession.
If you’re making a big purchase, pay with cash if you can, or consider delaying the purchase for a while to protect your personal finances during a recession.
Become a Cosigner
Cosigning for a loan during good economic times is a significant risk since you’re depending on the borrower to responsibly make payments. However, an economic downturn increases the risks substantially because it could put the borrower in an unexpected position. If you do find it necessary to cosign for a trusted friend or family member, consider putting some savings aside in case you have to make good on your promise.
Take Your Job for Granted
A recession doesn’t only create personal financial distress. It put a significant financial strain on businesses, too. For companies, cost cuts often come in the form of layoffs and terminations. While you might think you can get another job quickly, it’s important to remember that jobs are more vulnerable during a recession and might not be as easy to find.
Managing your Personal Finances During a Recession – Top 5 FAQ Questions
What is a recession?
A recession is a period of temporary decline during which trade and industrial activity are reduced. As a result, businesses and individuals generally need to make cutbacks to avoid financial distress.
Are we in a recession?
According to the general definition – two consecutive quarters of negative gross domestic product – the U.S. entered a recession in the summer of 2022. However, other definitions surrounding the effects of a recession say we’re not there yet. Whether or not the U.S. is experiencing a recession depends on who you ask. However, it is important to be prepared.
How does the right insurance coverage help me during a recession?
Insurance coverage pays for the recovery, repair, or replacement of your covered assets if a covered event causes loss or damage to these items. People usually insure their most expensive possessions including homes, vehicles, and expensive possessions. Having this coverage in place can provide you with the cash to replace a necessity when you might otherwise not be able to.
How can I be sure I have the insurance coverage I need?
Schedule a meeting with your independent insurance agent to discuss your coverage. Make sure to mention any recent changes in your household and lifestyle. Ask about the deductions required for each of your policies and consider whether you could comfortably pay them during an emergency. It’s also a good idea to ask about available discounts since they could help you save on the costs of your insurance policies.
What is the best way to pay down debt to prepare for a recession?
There are several different ways to pay down debt. If you have high interest credit cards or loans, consider taking out a lower interest personal loan to pay off those debts. If you’re facing significant debt, it might be a good idea to pay off the smallest debts first, so you can contribute those payment amounts to larger debts and generate a snowball effect to get everything paid off.
Contact LoPriore Insurance Agency Today
To Get A Free Insurance Quote
We Make Insurance Easy For You!
Work with a local experienced insurance agent and save you time and money!
Maintain Your Personal Finances During a Recession
The potential for a recession is stressful news. However, making the right preparations can help you maintain financial security during difficult times. To learn more about how the right insurance coverage can help you maintain your assets during a recession, get in touch with the independent agents at LoPriore Insurance Agency.