What to Do Financially in a Recession: Establish an Emergency Fund, Reduce Spending & Invest Wisely

Introduction

A recession is defined as a period of temporary economic decline, typically characterized by reduced spending, lower production, higher unemployment and decreased incomes. When it comes to personal finances, recessions can be difficult to navigate. It’s important to have a plan in place in order to protect your money and ensure that you remain financially secure. Here are some key things to consider when facing a recession.

Develop an Emergency Fund

In uncertain times, it’s essential to have an emergency fund saved up. An emergency fund is a pool of money set aside for unexpected expenses or jobs losses. It should contain enough money to cover at least three to six months of living expenses. According to personal finance expert Suze Orman, “The best way to prepare for the future is to create an emergency fund that will cover your basic expenses for three to six months if you suddenly lose your job or have a major expense.”

Having an emergency fund can provide peace of mind and help you weather any economic storms that may come your way. It can also prevent you from going into debt if you face a financial emergency. Here are some tips on how to get started with an emergency fund:

• Start small and gradually build up your savings. Even putting away a little bit each month can add up over time.
• Set up automatic transfers from your checking account to your savings account so that you don’t have to think about it.
• Look for ways to increase your income, such as taking on a part-time job or selling items you no longer need.

Cut Down on Spending

When money is tight, it’s important to cut back on unnecessary spending. Look for ways to reduce your costs, such as eliminating subscriptions, eating at home more often and cutting down on entertainment expenses. Consider cutting luxury items such as vacations, expensive clothing and dining out. These small changes can help you save money in the long run.

Take On a Side Hustle

Taking on a side hustle is a great way to supplement your income during a recession. There are many types of side gigs available, such as freelancing, driving for a ride-sharing service or selling items online. Not only can a side hustle bring in extra money, but it can also give you valuable experience and help build your resume.

According to a survey by Upwork and Freelancers Union, 57 million Americans are now working freelance, which is 36% of the U.S. workforce. This is up from 53 million in 2014, indicating that side hustles are becoming increasingly popular.

Get Creative With Budgeting

Budgeting is essential during a recession. Challenge yourself to spend less than usual and look for creative ways to save money. Consider bartering services with friends and family, such as offering to do yard work for free in exchange for babysitting services. You can also look for free activities in your area, such as concerts, festivals and outdoor movies.

Invest in Stocks

Investing in stocks is another way to make money during a recession. While it can be risky, there are certain companies that are doing well despite the economic downturn. Research companies that are performing well and consider investing in them. This could provide a good return on your investment in the long run.

Take Advantage of Low Interest Rates

Low interest rates are one of the few benefits of a recession. Take advantage of these low rates by refinancing your debt or taking out loans for large purchases. This could save you a lot of money in the long run. For example, if you refinance your mortgage at a lower interest rate, you could save thousands of dollars over the life of the loan.

Conclusion

Navigating your finances during a recession can be challenging, but it’s important to take steps to protect your money. Develop an emergency fund, cut back on spending, take on a side hustle, get creative with budgeting, invest in stocks and take advantage of low interest rates. By following these steps, you can remain financially secure during a recession.