It is always a great idea to strengthen your finances. If you take into consideration the current economic conditions in the country, you may think that people should start thinking about the future. According to CNBC.com, the S&P 500 started 2016 with a less than stellar performance. This prompted people to think that we are probably facing another recession. The article revealed that experts are trying to pacify investors by saying that it will not be a repeat of what happened in 2008. Of course, people are finding that hard to believe because of their personal financial situations.
First of all, a lot of Americans are not really feeling the economic progress that is being reported in the news. The reports are saying that the employment rate is high right now. That means people have the means to spend for their needs. While that may be true, this does not necessarily mean people are feeling any financial improvement. At best, the majority is saying that their finances are just about the same. That means it is not getting worse, but it is not improving either. With the increasing credit balance of consumers, it is hard not to panic if you start seeing the stock market go down. A lot of people are seeing the same scenarios that lead to the Great Recession. And that is making them feel a bit of panic.
You cannot really blame consumers if they are thinking that things are turning for the worse. Although some of us have increased our credit card spending, we are still being cautious about our use of credit. With the news surrounding the stock market, you can bet that we would approach debt with a greater sense of caution now. You may feel the first signs of panic, you are highly encouraged to control that feeling because you will need your wits about you. It is not yet a guarantee that the country is headed for another recession but that does not mean you should not strengthen your finances. Whether the rumors about an impending recession is real or not, it pays to prepare your finances to withstand it.
4 steps to make your finances stronger before a financial crisis
If you think that your finances cannot survive a recession, then you need to start working on improving your financial situation right now. Regardless of how the economy turns out in the next few months, you will never lose if you work on improving your finances.
Here are 4 steps that will help you strengthen your finances to help it survive a looming recession.
Step 1: Review your financial documents.
The first step is to understand your financial position first. Look at your bank accounts and your credit report. You need to know how much savings you have and the amount of debt that you need to pay off. Your bank accounts should be easy to add up. You can also look into the assets that you own. If you have a house, find out the equity of your property. How much is of its value can be added to your assets? After looking at your net worth, you should look into your credit report. You want to understand your debt situation so you can check how much you will need to have in order to survive and continue paying off your credit obligations. We all learned that life became so much difficult during the Great Recession because of debt. You do not want to go through the same difficulties again. Make sure your debt is manageable so you will not sink when another recession happens.
Step 2: Pay off your high-interest debts.
The next step that you need to work on is your high-interest debts. Most of the time, these involve credit card debts. If you find out that you owe a lot of debt on your high-interest credit cards, you want to prioritize getting rid of them before the recession comes into full swing. These are the ones that can easily ruin your finances. You do not want to cancel your credit cards. What you want to do is to pay off the balance completely – or as much of the balance as you can. Any late payments on these cards can quickly escalate into a major financial problem. If you can get rid of the balance now and keep it that way, it will be easier to survive even if a recession does happen.
Step 3: Create a frugal budget plan.
The third step that will help you strengthen your finances is a frugal budget. Some people think that going frugal is like living a very restricted lifestyle. They believe that it is a life that does nothing to make their life happy or fulfilled. That is where you are wrong. If done correctly, a frugal lifestyle can actually make you happy. At least, this is the article published on TheGlobeAndMail.com claims. They interviewed a couple who follows a frugal budget and it proves that it is possible to be happy with a frugal budget. According to the couple, they do not feel like they are cutting back on anything. They are simply paying attention to the details and plan ahead. They control their budget and live within their means. They concentrate on what is important to them and the kind of life that they want. When you focus on that, it is also possible for you to enjoy a frugal budget. The best thing about this budget is you get to practice living on less than what you are used to. If the recession makes you lose one of your income streams, then you know that you only need to tighten your finances a bit in order to survive. Sometimes, you may not have to do any tightening at all.
Step 4: Diversify your income.
The fourth step is to add more sources of income. That way, if one source is compromised, you can survive on the others. This means started to save as much as you can so you can invest it. If the stock market is plummeting, this is a great time for you to invest your money. Just make sure that you will learn how to invest in stocks that can survive the recession. A bit of research is needed here. Just think about the things that you will prioritize in case you have limited financial resources. Usually, your priority expenses will be food. Investing in a company within this industry is a great idea. With the extra income that you are earning, you need to save it for the rainy day. What you cannot invest, make sure you save it. If you lose your job, your savings can help you survive for a couple of months.
It pays to strengthen your finances regardless of what the future holds for the economy. It is a win-win situation. In case nothing happens, you will end up with a stronger financial position. If something does happen and the economy plummets, you have prepared your finances to withstand the recession.
How to survive a financial recession with no savings
In case the recession is upon you and there is no time to save up for it, things will be harder. However, it is not impossible for you to survive it. You survived the last recession. You can survive this one too. Here are the tips that will help you do this.
Change your mindset and your habits.
Start by changing your perception about money. Sometimes, we think that money makes the world go round. While it does make things easier and more comfortable, it is possible for you to have a happy life even if you do not have a lot of money. Do not cling to the material possessions that you have. Be thankful that you have a roof over your head and food on the table. Money is a tool to make you happy and you do not need a lot of it to survive. You can learn to get what you need to survive even if the economy placed you in a difficult financial position. Apart from changing your mindset, you should also change your habits. Usually, if your mindset is different, your habits will change too. All the bad spending habits should be stopped. Be a wise about managing your money and you should be alright.
Do not withdraw your investments.
This is one mistake that investor make when the stock market crashes. Do not follow what the majority is doing. If your money is in companies that are known to survive economic downturns, you should keep it there. Do not touch them. In an article published on BusinessInsider.com, Jonathan Glionna gave some tips about investing during a recession. According to the Managing Director and Head of the US Equity Strategy Research at Barclays, you should concentrate on investing in telecom, healthcare, food, tobacco, beverages and other household and personal products. These are the staples that consumers will keep spending on regardless of the economic situation. The companies catering to these products and services will still encounter losses but they are more inclined to recover.
Downsize your lifestyle.
Another thing that you can work on is to downsize. Instead of getting your investments to help you live, you need to downsize how you are living. This means living in a smaller house and spending less than what you did before. Being frugal is a good idea at this point.
Think outside the box for income opportunities.
In case the recession cost you a day job, do not lose heart. There is a way for you to earn money. Think outside the box when it comes to earning your money. For instance, there are online careers that you can probably pursue. These online jobs saved a lot of people from the Great Recession. This can also save you this time. You just have to know how. If you also have a talent, skill or hobby that you can capitalize on, this might end up giving you a stable income stream while the economy is recovering.
It is hard to strengthen your finances when the economy is down but with hard work, you can survive this cycle. Although you may have reached rock bottom, remember that there is nowhere to go but up. When the economy recovers, make sure you use it wisely. There might be another recession in the future – you need to strengthen your financial position before that happens.