You shouldn’t be alarmed, but the economy isn’t looking great at the moment. for beginners, Don’t look at your 401(k) Immediately. From Stock market crash to me Consumer price hikeAnd the recession It seems that looming. Although the news is worrying, there are steps you can take to stave off panic and protect yourself as best you can During a period of economic downturn.
I spoke with personal financial expert Jane Smith, who co-hosts Tweet embed And the modernfrugality on Instagramwho shared Her top tips for what you can do now to prepare yourself for any nearby economic conditions.
Start by looking at your spending habits
Smith says to check at least the past 90 days of your spending to see exactly where your money is going. When it comes to the idea of ”downsizing,” many people panic and assume that their lifestyle will have to drastically change. Smith says this is a fear reaction and often isn’t the case. “The first thing you think you need to cut out,” like your daily coffee or weekly happy hour, can usually be the last thing you should go for. Smith shares that after looking at their spending habits, most people discover that they can first cut back on areas they don’t even realize they are wasting their money on (Ignored Subscriptions come to mind).
During a recession, the means to increase your income – raises, promotions, side activities – will be the same Limited. So while it’s best to start bringing in more money, Smith says that to get past the temporary hard times, “focusing on reducing income is more important than increasing your income.”
Handling high-interest debt first
Smith lays out two main approaches to debt handling: the debt snowball, and debt collapse. Snowball goals Your smallest debt first, Regardless of the interest rate, while the avalanche gives priority Debt with the highest interest rates. Smith advises you to prepare for a looming recession through a debt collapse.
as such Mentioned above, your income is not secure during a recession. Compared to the gradual debt snowball, the avalanche method is the stagnant survival method.
To use the debt avalanche strategy, wallet nerd She recommends collecting all the minimum you must pay on your debt (except for your mortgage). Ranking them from highest interest rates to lowest; Smith says that any interest rates above 5-7% should be your priority. then, Make a budget To determine the maximum amount you can pay to pay off your debts each month.
Start building a rainy day chest
It’s never too early to start contributing to a “rainy day,” which might more accurately be rebranded during a recession as a “rainy day.”emergency fund.
You want to create a “startup” emergency fund, but as those reserves grow, Smith says it’s likely that the top priority will be dealing with high-interest debt first. A possible guideline for what might be considered a “starter” rainy day fund is about one month’s rent plus your insurance deductible. After you reach that amount, refocus on paying off high-interest debt. Then you can resume building an emergency fund that can cover you for six months or more.
Listen to your fears, but don’t live in them
Recessions make everything uncertain. However, it is in your best interest to remain calm. “When we live in fear, we make worse financial decisions,” Smith says. While it is important to take the above precautions, it is unwise to let fear control your life.
You can find Jane Smith on instagram and listen to Frugal Friends Podcast Wherever you listen to podcasts.