As inflation soars and more experts voice their concerns over an impending recession, you feel a pressing need to reassess your spending and prepare your finances for a recession. Not to worry, for we here at Protect Wealth Academy are happy to impart six ways to help you regain a sense of safety and security over your finances. It is advisable to begin preparing for any economic downturn long before a recession officially starts, so read on and be assured that it is never too early to start!
Take A Hard Look At Your Monthly Budget
In the event of a recession, job security can no longer be assured, and job loss may occur. It is important for you to prepare your wallet for this worst-case scenario and reassess your monthly budget. If you do not have a monthly budget planner, start now! In the event of an emergency, such as a job loss, you will need your income to last as long as possible while you or your partner look for alternate employment.
Familiarize yourself with all your monthly costs and financial responsibilities. Write down the financial firms you work with and to whom you pay a regular fee. Check how much available cash you have at the moment, whether it is in saving or checking account. Identify which of your monthly expenses are discretionary and which are a necessity, and minimize your discretionary spending.
A monthly budget is essential to ensuring that you are living well within your means and not overspending carelessly. Comb through your expenses with a fine toothcomb so that you are able to maintain your standard of living and peace of mind.
Limit Big-Ticket Expenses
After you have familiarized yourself with your expenses, it is time to pinpoint areas where you can cut back your spending and eliminate nonessential purchases. Examples of such nonessential expenses – also known as discretionary spending – including dining out, vacations, luxury shopping trips, or any other lifestyle expenses that you can live without.
It may be easier to start small but cutting down on meals out, or abstaining from making any major financial commitments that you can postpone for now, such as a long-term membership fee or a vacation. You should spend no more than 30% of your net income (earnings after tax) on discretionary spending.
Pay Down Your Debt
If you have any high-interest-rate debts, such as credit card balances, start paying them down. Not only does this prepare your finances for possible job loss, but interest rates may also increase in the event of rate hikes by the Federal Reserve. Paying down your debt also frees your income to be put aside for savings, which you will need in the event of an emergency.
Boost Your Emergency Fund
Your emergency fund should cover at least six months of expenses. While this may seem daunting, small contributions make a powerful impact on your emergency fund. It is important to cut back on your monthly budget to free up breathing room that you can use to boost your emergency fund. Build a habit of regularly adding to a high-yield savings account to see your emergency fund expand over time. Better still, automate these contributions!
After taking these steps, you’ll have built better financial resilience for an economic downturn. However, did you know that there’s much more that you could be doing? If you’d like to educate yourself on how you can grow and protect your wealth, contact us today. We offer courses and online training for you to learn at your own pace.
