5 Simple Ways to Prepare Your Personal Finances for a Recession

5 Simple Ways to Prepare Your Personal Finances for a Recession

A recession can be a scary time financially—but it doesn’t have to be if you prepare well ahead of time.

The economy in the U.S. is crumbling, and many are predicting a recession that could be on par with the Great Depression or worse. Around the world, inflation is soaring, and we can all feel the ground shifting—and with it, so are our finances and investments. Many people are anxious about inflation and sweating over making the right decisions to ensure their financial security when the economy gets sour. If you are looking to prepare well before the storm hits, here are a few tips that will help you figure your finances out. 

1. Create (or update) your budget plan

The first step to taking control of your finances is creating a budget. If you don’t already have one, now is the time to sit down and figure out where your money is going. Start by tracking your income and expenses for at least one month to get an accurate picture of your spending. Once you understand your cash flow, you can start making changes to fit everything into your budget. For example, if you’re spending more than you’d like on eating out, you can adjust accordingly by, for instance, cutting other expenses.

2. Cut unnecessary expenses and save, save, save!

Cutting unnecessary expenses will help increase your cash flow and reduce your overall financial stress during a recession or down market period. You can do so by reducing spending money on luxury items and unnecessary purchases, such as big houses, expensive cars and big-screen TVs. When shopping for groceries, buy in bulk wherever feasible to save money, especially when you have limited income to pay your bills or are trying to save up more.

As per U.S. Senator Elizabeth Warren’s book All Your Worth: The Ultimate Lifetime Money Plan, try to spend around 50% of what you earn each month on necessities, 30% on wants and 20% on savings—also known as the 50/30/20 rule of thumb. Although savings rates remain modest, they are gradually increasing. By saving in an online bank account, you may earn between 1.75% to 2% annual interest or more, which is higher than the average rate from a traditional bank. This may appear a difficult chore, but even small monthly savings may pile up over time.

3. Keep an emergency fund

It’s always a good idea to have some emergency funds on hand, but it’s even more critical during times of economic upheaval. It will help you tackle unexpected or regular expenses, like mortgages, medical issues, car repairs and school fees, when your wallet is tight. To calculate how much money to save up in your emergency savings, you have to go back to your budget plan to figure out how much you spend on bills and necessities. 

While it’s circumstantial, if you have a stable job, can rely on your family or friends, don’t have significant debts etc., an emergency fund that can cover three to four months’ worth of expenses might be sufficient. If your financial situation is less flexible (e.g., you’re expecting a child or the sole income source in the family), you might need to keep aside enough money for about a year’s worth of spending.

4. Get rid of high-interest debts

If you’re carrying high-interest debt, now is the time to pay it off. Credit card debt, in particular, can be very costly—so much so that it can make it difficult to save money or invest for the future. If you’re struggling to make headway on your debt payments, consider talking to a financial advisor about consolidating your debt or enrolling in a debt management program

According to CreditCards.com, the national average credit card rate has surpassed 17% for the first time in over two years. Moreover, the U.S. Federal Reserve intends to raise interest rates for the rest of the year. Therefore, getting rid of high-interest debt should be a top priority during any economic downturn.

5. Be mindful of investment risks

When planning for a recession, you don’t have to eliminate all risks from your investment portfolio entirely. After all, stocks tend to recover after a market fall, and there’s still room for growth even in bad times. If you have a stable job and have some time until retirement, you might want to explore investing more aggressively—just don’t over-monitor your assets, so you can get out fast if required. However, if you’re retired or nearing retirement age, now may not be the time to go all-in on stocks and other risky assets. Instead, prioritize capital preservation by investing in less risky assets, such as bonds and cash equivalents. 

If you are a beginner in investing, you can use micro-investing applications to your advantage. You may just invest small amounts of money, say US$5, in the market on a monthly basis, and your deposits will accumulate over time. It’s an efficient technique for first-time investors who want to dabble into the financial pool before diving in completely. Also, continue to learn more about investing—be it through reading books, Reddit posts or business newspapers—to ensure you are up-to-date with the latest developments in the market.

No one knows exactly what the future holds, but by following these simple tips, you can help protect your finances during these uncertain times. Remember to think long-term and don’t make rash decisions—we’ll get through this together!

Also read:

Header image courtesy of Freepik


Share on facebook
Share on twitter
Share on linkedin
Share on email


Companies That Are on a Hiring Spree amid Layoffs at Twitter, Meta and Other Big Tech

Companies That Are on a Hiring Spree amid Layoffs at Twitter, Meta and Other Big Tech

The tech industry is facing a slew of staff cutbacks since the beginning of the year. In November 2022, the internet went into a frenzy at Elon Musk laying off most of Twitter’s employees. A few days later, Meta also announced its own round of layoffs, letting go of about 13% of the workforce. Later, Salesforce also confirmed it had dismissed hundreds of workers to cut expenses.

4 Business Sectors Reaping Profit from FIFA World Cup 2022

4 Business Sectors Reaping Sweet Profit from FIFA World Cup Qatar 2022

The 2022 FIFA World Cup 2022 in Qatar will generate roughly US$6.5 billion in revenue, topping the previous record of US$5.4 billion from the 2018 World Cup in Russia. Thanks to the once-in-four-year tournament, Qatar’s GDP is estimated to grow by 4.1% in 2022, and the tournament alone could add up to US$20 billion to Qatar’s economy.

Transparency in the Post FTX World What is Proof of Reserve

Transparency in the Post FTX World: What is Proof of Reserve?

In November this year, two big league crypto businesses, FTX and BlockFi, filed for bankruptcy. FTX had a death spiral after news broke out that the Sam Bankman-Fried-owned exchange had used customer funds to make risky bets through his hedge fund Alameda Research. On the other hand, FTX was closely associated with BlockFi, with them having signed a loan agreement with each other and BlockFi holding US$355 million in digital assets on FTX.

How Do Recommendation Engines Work

How Do Recommendation Engines Work?

Picture this: You just finished a film on Netflix and want to follow it up with something similar. Luckily, Netflix comes to the rescue and gives you the perfect suggestions to continue your weekend movie binge. This isn’t just a hypothetical scenario but something a lot of people actually go through.

Quantum Computing Has a Cybersecurity Problem. Here’s How Experts Are Solving It

Quantum Computing Has a Cybersecurity Problem. Here’s How Experts Are Solving It

In 2019, Google used its quantum computer, the Sycamore machine, to prove that quantum computers can solve a problem in mere minutes. Experts working on the quantum computer found that their system could execute a calculation in 200 seconds, whereas a standard computer would take 10,000 years to complete. What on earth is this powerful tool?

Here Are Some Alternative Sites People Are Jumping To

Musk May Have Killed Twitter: Here Are Some Alternative Sites People Are Jumping To

Ever since Elon Musk purchased the social networking site Twitter for US$40 billion, things haven’t been looking too good for the company’s future. Not only did Musk fire over 50% of the employees soon after stepping on board as the new chief executive officer, but he also intends to allow maximum freedom of speech. This can end up making Twitter a cesspool of racism and misogyny, as well as other forms of hate speech.