6 ways to plan now for a possible economic downturn
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Everyone from corporate CEOs and Wall Street investment bankers to financial advisors and regular consumers have said publicly that they believe an economic downturn is imminent.
The writing certainly seems to be on the wall.
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Inflation remains near a 40-year high, rising interest rates are dampening economic expansion, the stock market remains deep in the red and GDP fell in the first quarter – two straight quarters is the territory recession official.
There’s not much you can do to change anything, but there are steps you can take to better prepare yourself if the economy deteriorates. Keep reading to see how to protect yourself and your finances from an impending recession that seems more likely every day.
Review your monthly budget for unnecessary expenses
Mobile finance tracking apps like Mint and Simplifi — and likely your bank and credit card providers — use simple charts and other visual aids to reveal the categories that account for most of your monthly spending.
With economic troubles looming on the horizon, it’s now more important than ever to take a moment at the end of each month and look back through your budget for opportunities to cut the fat.
“One of the most effective ways to cut unnecessary spending is to eat at home,” said Jessica Kats, budgeting and finance expert at soxy. “Even if you cut your eating out in half, you’ll find you can save a lot of money each month.”
Economic downturns lead to higher unemployment rates and more people competing for fewer jobs. By creating a parallel hustle now, you can develop an alternative source of income in case your job becomes a victim of the next recession – and you can amass a financial cushion while you’re still employed.
“A secondary hustle can help you build your savings,” said Oscar Rodriguez, financial blogger and founder of OssieRodriguez.com. “When you have extra money from a side business, you can funnel it into a savings account or use it to pay off debt. This can leave you in a much better financial situation if you encounter an unexpected expense or job loss.
With rising interest rates, it is becoming more and more expensive to borrow money. If you have high-interest credit card debt or other immediate obligations that you don’t have the cash to cover, now may be the time to apply for a loan or extended credit before rates do not go back up, which should happen throughout 2022.
Sites like Credible let you compare rates from all the major lenders in one place – actual pre-approvals, not estimates.
Keep in mind that this trick only makes sense if it is within your means and does not exceed your finances.
When things are going well and the economy is booming, experts often recommend the snowball debt repayment method. This is when you first focus on paying off your smallest debt for an easy win, then move on to the next smallest debt, and so on.
However, when the market turns south and the economy starts to contract, you should reverse the trend and use the avalanche method. This strategy puts every available dollar into paying off the debt with the highest interest rate while only paying the minimum on all your others – and so on.
This way you will have the most toxic debt under control when the economy is bad.
“As a rule of thumb, it’s a good idea to pay off high-interest debt first, using savings if necessary,” said James Holland, founder of LifePart2.com.
Garage sales have given generations of people the simultaneous benefits of raising money while decluttering — and you can do the same without strangers wandering around your property at 5 a.m.
If you have designer or luxury clothes and accessories, try apps like Poshmark or Tradesy. Nextdoor and OfferUp are great choices for quickly selling products to local shoppers without having to worry about shipping. Meta Marketplace and CPlus for Craigslist can put your business in front of millions of potential buyers from across the country and around the world. If you’re offloading a big-ticket item like a pool table, eBay is probably still your best bet.
If you are already struggling, there are programs and organizations that can help you survive the coming downturn. USA.gov is a good place to start looking for them. A federally run website, it has information on finding help paying your rent or mortgage, buying food, paying for broadband, avoiding student loan defaults, avoiding homelessness and paying for the funeral.
USA.gov also has information about programs such as the Supplemental Nutrition Assistance Program (SNAP, or food stamps), Medicaid, Children’s Health Insurance Program (CHIP), and Temporary Assistance for Needy Families (TANF, or social assistance).
USA.gov also has a state-by-state list of resources and contacts to help you find help where you live.
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