If you’ve been following finance news lately, you may well be concerned about the potential for a recession. Many experts have anticipated a downturn, and with certain markets crashing in a way unseen since the Great Recession, things do not look good.
That does not mean you should panic. There are ways to improve your financial situation so as to prepare for a recession. While it is ideal to start preparing well in advance, there are always things you can do to recession-proof your finances. Try the following 5 ways.
1. Lower your car insurance premiums
When looking at your monthly budget for ways to save, chances are that insurance is something you take for granted as ever present. However, there are ways to save on your car insurance premiums, even if lowering other types of policies will be more of a struggle. You don’t even need to give up on features to do so.
Lowering your car insurance premiums may be as simple as getting and comparing quotes from other companies. Even if you did this when you initially got your policy, you may benefit from doing so again. Your life circumstances have changed since then, especially if you were under 25 when you got your policy. Your insurer may have continued pricing you according to your old risk profile.
There are other ways to lower your car insurance premiums. Many companies now offer a usage-based insurance (UBI) model which only prices you for when you use your car. It is also worthwhile asking about discounts, including any plans which give you benefits based on how well you drive.
Other solutions include paying for a full year upfront, raising your deductible, and, if you own an old car, considering dropping some of your coverage.
2. Consolidate your credit card debt
Paying the balance of your credit card debt improves your finances significantly. You no longer have the high-interest payments to make every month. Of course, this requires you to have the funds to do so, and most of us do not. There is an alternative.
Balance transfer credit cards provide a way for you to use a new credit card to pay off your old card. The new credit card may come with a lower interest rate, and will usually charge zero interest for the first few months or year. You will eventually have to start paying interest again, but in the meantime you can significantly reduce what you owe, while having more disposable income every month.
3. Build an emergency fund
Look, if a recession starts in the next few weeks, building an emergency fund is not a viable solution. You simply won’t have the opportunity to get it to a level that is actually useful. Nonetheless, you should start doing so anyway. There may not be a recession now, and you will thank yourself later.
An emergency fund is different from your savings, in that it is not part of your long-term or retirement plan. Rather, it is a fund which is easily accessible that gives you extra funds in case of emergency. This may give you the ability to pay an unexpected expense, or even to last a few months without income.
4. Find more income sources
The best way to recession-proof your finances is to have more than one income source. This is easier now than ever before, even if you don’t think you have any potential side hustles. In 2022, you can start a freelancing career from nothing in no time. You can do so by making goods and selling them, selling your skills, or starting a trading account with some extra funds.
These extra income sources may not be enough to cover you if you lose your main source of income due to a recession. However, you are far better off than if you have no income sources, and your side hustle can become a way of earning significant cash with more time available.
Even if there is never another recession, having more income sources is always a good idea in today’s world. At the very least, you will find you have funds to do things you’ve always wanted to do.
5. Cut down on what you don’t need
None of us want our quality of life to be impacted in order to recession-proof our finances. However, sometimes we have little other choice. You should have a look through your budget and decide what you can cut down on. With expenses going up at an alarming rate, this may be something you need to do regardless.
A recession may or may not be on its way. Even if it is, that does not mean you will personally struggle. Nonetheless, it is important to take the opportunity to do what you can to recession-proof your finances.