Rising costs of housing, energy, and other expenses have many people worried that a recession is on the horizon. So, what exactly is a recession? A recession is a significant downward trend in economic activity that’s spread across the economy and usually lasts for several months. It’s best to be proactive about protecting your finances from an economic downturn. Here are 7 ways to recession-proof your finances.
- Work on Increasing Your Income
When your income doesn’t stretch as far as it used to, one thing to work on is increasing the amount of money coming in. For some people, this means investigating options for changing jobs. For others, it means asking for a raise, taking on a side hustle, or selling unwanted items on Facebook or eBay.
- Cut Your Expenses
Most people have some expenses that aren’t really necessary. To recession-proof your finances, evaluate where your money is going and consider where cuts can be made. Is it time to cut the cord with your cable company? How can you reduce your grocery bill? Take advantage of credit card rewards, compare prices, and shop during sales.
- Pay Down Credit Card Debt
Carrying debt on credit cards is expensive, and as interest rates rise, it becomes more and more expensive. Work on paying down your credit card debt. If you can see a path to being debt-free within the next few years, focus on following it. If that’s not realistic, consider if it would make sense to pay off your credit cards with a personal loan to help save money in interest.
- Spend Less Than You Earn
Look at your overall budget. Are you living within your means? If you’ve been careless about sticking to a budget, it’s a good time to start paying attention to where your money is going and find a way to spend less than you earn. Avoid buying things on credit that you can’t really afford. Instead of buying new, look for things at second-hand stores and yard sales.
- Add to Your Savings
As you work on spending less, you should also work on adding to your savings. Having extra funds on hand can save you if you’re faced with an unexpected emergency. Set a small goal if you’re just getting started, such as building up to a balance of $500. If you’re already in the habit of saving money, work on saving an emergency fund equal to three to six months of income.
- Lock in Interest Rates
If you have a variable rate mortgage or loans that have a variable rate, shop around to see your options for the lowest fixed rate product you can get. With interest rates continuing to rise, it may be a good idea to lock in your interest rates with a fixed-rate mortgage or loan.
- Keep Your Credit Score High
Your credit score is an important factor in your borrowing power. Protect your credit by paying your bills on time, limiting your utilization of revolving accounts, and avoid opening too many new accounts. Dovly is an AI credit engine that can help you dispute any errors you find on your credit report. Try it risk-free with our free membership tier. Get in touch with Dovly today.
