How to recession-proof your budget so you’re ready for whatever comes your way
Prices for gas, food and rent are skyrocketing. The Federal Reserve has increased interest rates at the highest level since 2018. The US economy contracted for two straight quarters.
Economists are divided on whether a the recession is coming. What is clear is that the economic uncertainty is not going away anytime soon. But there are steps you can take now to be ready for whatever lies ahead.
Yiming Ma, an assistant professor at Columbia University, says it’s not a matter of if but when a recession will happen. People should prepare, but not panic, he said.
“Historically the economy has always gone up and down,” Ma said. “It’s something that happens, it’s a bit like catching a cold.”
But, he notes, some people’s immune systems are better able to recover than others. The same is true with finances. If you think a recession could destabilize yours, here are some things you can do to prepare.
Know your expenses and make a budget
Knowing how much you spend each month is key. Mom recommends sitting down and writing down how much you spend every day. This will help you see what’s coming in, what’s going out, and what unnecessary expenses you can cut.
“By understanding what money you’re taking in and what you’re spending, you may be able to make changes to help you through tough times,” advises the Federal Deposit Insurance Corporation’s Money Smart, a financial education. program.
Budgets often reveal expenses that can be completely eliminated or impulse spending that can be avoided with planning.
For budgeting guidance, free courses like “Create a budget (and sticking to it)” by CT Dollars and Sense, a collaboration of Connecticut State Services and Nerd Wallet’s Budget Calculator may be good places to start.
Save as much as you can
The more unnecessary expenses you can cut, the more you can save.
It’s not possible for everyone, but Gene Natali, co-founder of Troutwood, an app that helps people create financial plans, says it’s ideal to save enough money to cover basic needs for three to six months.
Programs like America It stores a nonprofit campaign by the Consumer Federation of America, can help create a road map.
And if you have a savings account, it’s important to check if your bank is giving you a good interest rate and shop around if it isn’t, Ma’s Columbia said.
Her advice is to track your monthly fees or service charges that can eat into your savings. But don’t limit your options. Online banks sometimes offer better interest rates than traditional banks.
Consolidate your loans and do not take out any more
As interest rates rise, experts recommend consolidating your loans to have just one fixed-rate loan and, if you can, pay off as much of your debt as possible.
“Job security tends to be worse when a recession comes, it’s not a good time to accumulate debt,” Ma said.
But paying for your belongings debt it’s easier said than done. Federal Trade Commission Consumer Tips guide for Getting Out of Debt can help you make a plan.
With interest rates high, it’s also not a good time to get new loans large expenses such as carsalthough experts recommend that if you need durable goods such as vacuum cleaners, ovens or dishwashers, buy them as soon as possible to avoid future price increases.
Check out thrift stores and yard sales
Allen Galeon, a home caregiver in California, has been affected for months by the rising prices of household staples such as groceries, paper towels and gas for his commute.
His son’s favorite Hi-C orange-flavored drink, which was $1.99 for a six-pack, is now $2.50.
Since the start of the pandemic, when Galeon reduced caring for multiple families to a single client to reduce his health risks, his household has faced financial instability.
One choice she’s made is to buy items like clothes or electronics second-hand whenever possible, whether it’s from Goodwill, pawn shops or Craigslist. But be careful when trading with strangers through Craigslist ads and read on safety tips before using the online market.
Negotiate your monthly bills
Since the pandemic, many companies have updated their relief policies and become more flexible with users, according to Kia McCallister-Young, director of America saves.
Calling your monthly service providers to negotiate bills — whether it’s utilities, phone service, cable, internet or auto insurance — can result in significant savings, McCallister-Young said. Individuals can request the best price, any available discounts, rebates or coupons that may result in a reduced monthly fee. If a provider is competing with other companies, there’s an even greater chance of receiving a discount, he added.
“Telling them ‘I’m thinking about switching’ or that you’re shopping helps — if they know you’re thinking about leaving, they’ll give you the best rate, and the goal right now is to find as much cash flow as possible,” he said.
Check out federal programs like Low Income Home Energy Assistance Program, which helps cover bills and life line, who can help with the phone accounts. If you’re not sure if you qualify for any federal or state program, you can call 211which will connect you with a local expert who can help.
Change your groceries
Grocery shopping with a meal plan, buying generic rather than brand-name products, or buying in bulk are some of the recommendations by the Consumer Federation of America.
“A lot of stores have price matching, so if you show them that a competitor is selling the same product at a lower price, they’ll match that,” McCallister-Young said. “You also want to look at the stores that are closest to you so you don’t spend the extra money you’ll save on gas.”
An alternative way to save money on groceries is to check out food sharing apps such as Olio, that connects people around their community to share extra groceries, and also Good to go, where customers can buy businesses’ surplus food at a discount.
See government aid programs
Even with these saving and spending practices, one month’s wages are not always enough to cover major expenses. If this is your situation, programs across the country are available to help.
“Sometimes there’s not enough ‘end of the month’ at the end of the month,” said Michael Best, an attorney at the National Consumer Law Center who works on financial services issues.
To use these resources, check if you qualify for Emergency Rental Assistance ProgramSupplemental Nutritional Assistance ProgramFarmers Market Nutrition Programor Home Owners Assistance Capital. These are all federal programs coordinated by state governments. Some states offer additional local programs for their residents.
Explore community help
If you are experiencing food or housing insecurity, look for nonprofit or community organizations around you. From housing support and food banks to usefulness help, nonprofits across the country can help. National Organisations such as Feeding America which hosts food banks in all 50 states.
“We’re already seeing the community reaching out to us overwhelming numbers because of what is happening in the country in terms of economic stability,” said Kavita Mehra of Sakhi for South Asian Women, an organization that helps domestic violence survivors in New York.
Her organization provides shelter, food and emergency cash assistance for people in the community. She said that between January and June, her group distributed more than $150,000 in emergency cash assistance to survivors struggling to keep the lights on and food on the table. That’s more than last year.
Food aid organizations such as Ample HarvestNo hunger America and Food Rescue USA offers maps that allow users to search for a nearby food bank by typing in their zip code.
Exercise and take care of your mental health
Between worrying about bills and not knowing what your financial future might look like, your stress levels can be through the roof.
“It’s a hectic existence,” Galeon said. “You have to manage a lot and you have to keep calm, for the sake of your mental health.”
Debra Kissen, clinical director of Light On Anxiety CBT Treatment Centre, recommends first recognizing when your body is stressed. Then he advises mindfulness exercises such as breathing, touching a wall to calm down, and completing the “five senses for stress relief”excercise.
Short workouts they are also known to improve both physical and mental health. Research from Iowa State University also finds that a little exercise can improve your mood, providing short-term relief for people with depression.
Most health insurance policies cover some type of mental health assistance. If you don’t have health insurance, you can search for sliding scale therapists across the country, including FindTreatment.gov and the Anxiety and Depression Association of America Index.