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How to be prepared for a recession

A global pandemic.

A housing market turned upside down.

Sometimes, life moves in unexpected ways and results in a recession.

Our role is to take a page from the Scouts, and always be prepared. You can change your financial future by adjusting your spending and saving habits today. Why? So you aren’t blindsided when the next recession strikes. 

When a recession hits the economy

By definition, a recession is when the economy sees a downturn for six months in a row.

Rising unemployment is a natural byproduct. Dealing with unexpected job loss becomes a sudden reality for many Americans. 

In a recession, government stimulus programs are common. Credit unions are also there to help. During the COVID-19 pandemic, Numerica offered options like loan extensions, emergency loans, and mortgage assistance programs.

But don’t wait for when you need emergency help. Although it’s unsettling to think about a recession, there are steps you can take to prepare your finances now:

  • Figure out your debt
  • Create a spending plan
  • Plan for the long haul
  • Consider side hustles

Figure out your debt

Credit cards. Loans (car loans, student loans, lines of credit). Mortgage. Everyone’s debt looks different.

When trying to balance your finances, know that skipping payments, making late payments, or maxing out balances have a long-term effect. Delaying loan payments has serious consequences, too.

If you have debt, make sure you have a plan for it. We can help you find debt solutions.

Don’t pay debt with more debt. Payment history and available credit make up 65% of your FICO Credit Score. Keeping your credit score in good standing will help you immensely before, during, and after a recession. You’ll be able to purchase homes and vehicles at better interest rates by having better credit.

Don’t skip payments or use multiple credit cards to “rob Peter to pay Paul.” Tempting as this may be, it’s a really bad idea. If you feel this may be a route you need, don’t wait to reach out to your lenders. It’s much easier to find a solution before missed payments or delinquencies.

If you can get ahead, do it. Pay more on your debt than just the monthly interest. Focus on paying the principal amount as quickly as you can. You would be amazed at what a big difference that makes.

In a place where you want to make strides paying off your debt? Now we’re talking. Here’s all you need to build a plan and put it in action. We recommend the snowball method, which focuses on paying off your smallest debt first and rolls that payment onto the next debt. It’s debt payment with momentum!

Create a spending plan

If you don’t tell your money what to do, it tells you what to do.

That’s why you need a budget. Use Numerica’s free budget workbook to set yours up, and answer all your questions with our Budget 101 breakdown. Learn how to start a budget, refine a budget, and make your budget work for you. 

Building savings is an important aspect of your plan. Develop savings habits one day at a time by starting small. Having $1,000 in a savings account is a good initial goal. Without an emergency fund, you could be forced into debt and high-interest credit cards, so this is a great first step.

From there, work toward building a three-month emergency fund. Once you reach that goal, go for a six-month emergency fund. Saving money is like climbing a mountain — one step at a time.

Looking for a tool to help you save? Consider Round Up to Savings, which uses your everyday purchases to build a savings account automatically. 

Plan for the long-term

Recessions come and go. But when they come, they can leave a terrible mess of your future plans if you don’t think ahead.

Even in an uncertain investment market, withdrawing from things like your retirement (401(k), IRAs) should be a last resort. Consider the consequences if you do withdraw money early.

In a recession, most retirement accounts will give you the ability to hit the pause button and temporarily stop making contributions every month. Every plan is different, so explore your options. And don’t forget to start them up again once the crisis has passed.

In the meantime, don’t be intimidated by taking steps today that you will thank yourself for tomorrow. A little bit of Investing 101 can set you on a course for long-term well-being.  

Consider a side hustle

Building a side hustle today may give you the tools to help in a future recession.  

Looking for extra work is a great way to pick up extra cash and possibly turn a side hustle into a new business or a new full-time job. If you have a full-time job, all of your side hustle money should go to reducing debt or building your emergency fund.

Note that, side hustles do require you to think about benefits and taxes. For example, if you’re collecting unemployment, side hustles can reduce your unemployment benefits. Also, side hustles are income, and the IRS expects you to pay taxes on any income earned, so research and set aside the proper portion of your income for next year’s taxes.

Looking forward

One thing is certain: There is no financial crystal ball. Life is in constant motion. So is money. Numerica works hard to be a partner with tools and resources through the twists and turns of life — all so you can live well.

So no matter where you find yourself today, reach out to us. We’re here to help you live well tomorrow.

After all, we’re in this together.

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