Economists started predicting the next economic recession long before the COVID-19 pandemic. A February 2019 survey by the National Association for Business Economics found that 77% of respondents said they expected a recession by 2021.
Considering the economic landscape in light of the pandemic, now's as good a time as ever to think about how to manage money during tough times. This advice can make a downturn easier on your finances, but is also general good practice during good times, too.
Make a strategy for your debt
It's expensive to continue paying high interest on debt; one of the best things you can do for your financial situation is to reduce this debt as much as possible.
Establish a plan to pay off debt – but first, take inventory of all your debt obligations, and consider which to prioritize. In many cases, credit card balances should be first, Bankrate explained. They typically have higher interest rates than other types of debt, such as mortgages. They may also have stricter requirements and timelines than certain debts like student loans.
Add to your emergency fund
Your emergency fund should have at least three months' worth of living expenses, but there's no reason to stop there.
Recessions often mean layoffs and a slow job market. Should you lose your job, or have your income reduced, an emergency fund will help you keep up with bills, debt, rent or mortgage payments, food and utilities.
Continue professional development
If you feel secure in your career or happy with your job, it's easy to put professional development and networking on the back burner. Keeping up with these activities can end up being a major help to you in the long run.
In 2009, the Great Recession pushed unemployment to 10%. At the time, the highest unemployment rate since the Great Depression, when it rose to 20% in 1933, according to PBS. In April 2020, unemployment rose to 14.7%, the Bureau of Labor Statistics reported.
It's impossible to predict when or if your work may be impacted. The best way to be prepared for unexpected loss of income is to continually build your skills, update your resume and grow your professional network.
Review your budget carefully
A balanced budget will allow you to pay down debt faster and add more money to your emergency fund. Take the time to review how you're currently spending your money, and find ways to cut costs.
Additionally, trimming your budget means you're less likely to take on more debt, Investopedia explained. By making a point to live within your means, you won't need to rely on credit to buy everyday items like groceries and gas if prices increase.
Never stop preparing
Even the most experienced economists can miss the mark in predicting when a downturn will occur. The solution, therefore, is to always be prepared.
Even during positive economic times, continue to pay down your debt, make contributions to your emergency fund and strategize ways to boost your income. It never hurts to be prepared.
Reach out to The Federal Savings Bank to learn more about how we can help you keep your finances secure, no matter the economic situation.
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