(TheConservativeTimes.org) – When American families begin to see the cost of food, rent, and other necessary expenses rise to the point of hardship, it doesn’t really matter if the National Bureau of Economic Research is calling it a recession or not. The anxiety of how to protect your money and income can dominate your thinking, but by keeping calm and taking precautionary measures, you can remain financially stable even in a recession.
Before we dig into what you can do to protect your finances in a recession, this article will briefly remind us what a recession is, and what the danger to an American household may be.
What is a Recession?
A recession is called when over a period of 6 months of economic contraction, these 5 elements have been observed:
- Consumer spending slows
- Unemployment spikes
- Manufacturing activity slows down
- Households observe a drop in personal income because of job loss
- An inversion of the yield curve is observed
What Are the Dangers to the Average American’s Finances?
A recession may result in one or more members of a household losing their job, or finding their opportunities for growth with their company diminish. As inflation rises, pay increases may not keep pace with rising prices, resulting in more stress to the American household, and financial hardship.
Tips to Protect Your Finances During a Recession
1. Don’t Panic, Prepare
Once you see the signs that a recession is near (or already here!) don’t panic. Focus on taking careful stock of your current financial position, and make a plan for what it would take for you to survive a worst-case scenario situation.
Use your worst-case scenario to identify how much money you should have set aside to stay afloat through the worst of the recession. Use your current circumstances wisely by choosing to increase savings, even if it means putting off other purchases that might increase comfort.
2. Diversify Your Income
Use side hustles or consider having more than one person in the household maintain a job to ensure that even if one person loses one of their jobs, you still have some income you can count on.
3. Take Advantage of Low-Interest Rates
One of the methods the federal government uses to slow inflation and hopefully avoid or pull out of recession is increasing interest rates. While interest rates are still low, consolidate any debt you have into a fixed-rate loan. Then, even if interest rates go up on your loans or credit cards, you can be sure your expenses will stay manageable.
4. Protect Your Credit Score
Your credit score is a valuable asset. Make smart choices that maintain your credit score strong. Check in regularly so you know what adjustments need to be made, and take advantage of any opportunities that arise because of your diligence, such as credit card or debt consolidation offers.
5. Avoid Big Financial Commitments
Keeping your income as fluid as possible can help you be resilient to the changing atmosphere of a recession. Choosing to put off purchases such as a new home or car, or any other large unnecessary debt can leave your finances flexible and sustainable even if a negative change occurs to your income.
6. Take Good Care of Your Assets
In order to avoid needing to make large purchases, keep your assets in good repair through maintenance. Keep up on regular home and car maintenance, and keep your appliances and furniture in good repair so you can avoid costly replacements.
Protecting your finances during a recession can help you stay in control of a stressful situation. Stay calm, make a plan, diversify, and make choices that keep you out of spiraling debt. All recessions eventually come to end, so as you ride the current or next one out, use these tips to stay organized and endure.
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