There is no crystal ball to tell us what the economy will look like in the next year. However, history tells us it will eventually rebound and stabilize. While you await recovery, your personal budget could use another look.
Take time to focus on your financial health. The smart money moves you make today can have an immediate – and lasting – impact on the bottom line.
Here are nine practical ideas for making the most of your money regardless of economic conditions.
Recession-Proof Your Finances
Reviewing, adjusting and strengthening your financial plan is especially important in a slower economy. Making some simple changes today can mean the difference in surviving times of layoffs, decreased opportunities and ongoing uncertainty.
1. Build a realistic budget. A solid plan for your money covers both income and expenses. In tight economic times, budgets go off balance when income declines. Make sure an updated plan is realistic and based on what’s happening in your world today. Even if your income is stable, your planning should anticipate for the worst.
2. Identify unnecessary expenses. Cutting back discretionary items like take-out meals or specialty coffee can help the bottom line. But to make a bigger impact, review TV subscription services and cell phone plans for possible savings. Look to buy used or search for deals on bigger-ticket items if the purchase cannot be put off until a later date.
3. Start an emergency fund. Maintaining a minimum amount of easily accessible funds ($1,000 for example) could help cover surprises such as auto repairs or broken appliances without upsetting the budget. If you are working from home during the pandemic, stash the money saved from no commuting, no daily lunches or even by making your own morning coffee.
Did you get an unexpected bonus? Add it to your savings accounts. As the economy recovers, make this a habit until you have enough money in reserve to cover a few months of expenses.
4. Refinance debt. Rates are low right now so it may make sense to refinance a mortgage for lower payments or faster payoff, improve your home to increase value, consolidate higher-interest debt and work toward payoffs.
5. Utilize digital banking. Daily tasks such as paying bills or depositing checks can be accomplished without leaving home thanks to digital banking platforms. Taking advantage of automatic withdrawals and payments is more efficient and you can reduce risk of late payments.
Using a mobile app lets you track expenses in real time and keeps you in control of your budget.
6. Speak with a financial advisor. Making the most of your money is not always easy. Consult experts who will help identify opportunities to save, invest and plan for your future.
7. Maximize 401K contributions. If your employer has a 401k retirement plan – especially a matching program – it’s important to divert the maximum when possible. Saving for retirement is essential given the uncertainty of government-sponsored retirement plans.
Take time to learn about the investments in the program and how they match your time horizon and savings goals.
8. Review Insurance. Auto, home and life insurance are other areas to review for possible savings. Check rates at several companies and ask about discounts for safe driving or multiple vehicle coverage.
9. Check credit reports. All three major credit reporting agencies are encouraging consumers to check their credit report for errors or fraudulent activity. Keep in mind that any deferrals or forbearance established during the pandemic should not negatively affect your credit.
Through April 2021, you can check your credit report once a month for free (visit annualcreditreport.com) to monitor your account activity. Note that your credit score is not included on these reports.
Back to Basics
You may feel as if you have given up control of your finances. However, now is the time to refocus and take back control. Break down your budget to the basics and find ways to cut expenses, maximize saving and create a plan for the current economy. Revisit the plan periodically when economic conditions shift.
Sometimes it takes a pandemic to kickstart our drive to review the budget. Take advantage of this time to review and improve your financial health.