Even before COVID-19 hit, experts were concerned about a recession on the horizon. Cues from the stock market, a slowing global economy, and other signs point toward an incoming recession that the United States should be prepared for. You can never be sure whether a recession is actually imminent, but you can always be preparing for financial success.
Recession or Not, Prepare for Financial Success
Financial success is always a worthy pursuit. In good times and in bad, it’s nice to have the cash you need to support your family and your lifestyle without stress. While money certainly doesn’t buy happiness, society requires that you have at least some of it in order to survive and thrive.
Attaining financial success requires diligent effort over a long period of time. Very, very few people make it big overnight. Those who do enjoy financial success typically spent years building up their fortune. Here’s how you can do the same:
Start an Emergency Fund
If you haven’t already, look at starting an emergency fund. Those with enough savings to last through COVID were able to land on their feet as jobs returned and businesses opened up once more. A savings account helps you to stay out of debt which can cripple you for a long time even after a recession has ended.
Start by setting aside a portion of your paycheck each month toward a savings account. The percentage is up to you, although many experts recommend around 20% of your income. Additionally, an emergency fund is recommended to have anything from three to six months of your income stashed away, so make that your ultimate goal as you start your emergency fund.
Dig Into a Side Hustle
During a recession, one of the first things to be lost is your job. Businesses tend to trim the fat so to speak to try and keep themselves from falling into a hole or failing until the recession has lifted. That’s part of why the United States saw record numbers of unemployment claims at the height of COVID-19.
To make sure you still have some income if your job security were ever to come into question, start up a side hustle. You can lean on this side gig to at least cover your basic expenses during tough times.
Keep in mind that not all side hustles are created equal. When the economy is good, you can get away with turning your passion into a job, such as creating art or music or building your new dream business.
During a recession, luxuries are the first thing to be cut out of personal budgets. Cutting luxuries may be cooking a healthy meal at home instead of eating out those extra meals — you don’t have to get your knickers in a twist by getting yourself into a scarcity mindset. Don’t do that. Think hustle. A side hustle centered around an essential service, such as affordable meal options or handiwork, will likely be more in demand.
Generate Passive Income
Another way to ensure that you’re still making money during a recession is to generate some passive income. This is income that you receive without actually doing work for it. Sure there’s effort involved, but you make money even if you don’t clock in for a nine to five shift.
A prime example of passive income comes from real estate. Buying a rental property is one of the best ways to earn passive income, although it takes a fair amount of capital to get started. Other ways to earn passive income to start include running ads on a blog or website, renting out a spare bedroom, or using your shed or garage as storage space for others.
Get Rid of Debt Now
Any debt that you have needs to go as soon as possible. You don’t want to be stuck paying off credit card debt or student loans if a recession hits. While paying them off on time may help with your credit score, in the long run, interest will continue to build up and cost you even more money if you don’t take care of it soon.
Start by adjusting your budget to pay more than the minimum payment for your active loans. This will cut down the time it will take to remove your outstanding balance, reducing the amount of interest that builds up. Most importantly, don’t allow yourself to get into more debt than you can handle. A mortgage payment is inevitable, but credit card debt is almost entirely inexcusable if you’re playing your cards right.
Take Advantage of Employer Programs
Does your employer offer a retirement program or other financial benefits? Max it out as often as possible. For example, if your employer is willing to match the contributions you make to a 401k, you can be setting aside a lot more money without taking an extra hit out of your own bank account.
Be sure to take advantage of insurance plans, discounts, and any other benefits your employer offers. Some companies will even help pay off student loans. Their efforts will take you further along your journey to financial success than you could on your own.
Record Your Finances
Every self-help article you read about finances will tell you to budget. They’re not wrong; a budget is perhaps the single most effective tool for making smart financial decisions. However, it’s not the only thing you can do to succeed financially.
Keep a record of every detail that would make sense to account for in your budget. Rather than loosely sticking to a general plan, recording all your transactions shows you exactly what you can do to adjust your finances to meet your goals. Additionally, good record keeping will help you figure out which tax breaks you can qualify for, landing you a better return each year.
Good financial habits must be developed over time. Start working on your finances today and even if a recession hits you will stand strong.
Image Credit: mikhail nilov; pexels; thank you!