The first question you might have with this is if it is really possible to strengthen your finances to the point that it is recession proof. This is a timely discussion since Newyorkfed.org shares that for the first quarter of 2017, debt balance for households has grown to alarming levels. This is because it has surpassed the amount of debt people had during the peak of the 2008 crisis.
That was one of the most challenging times in the nation’s history. The crisis saw the housing bubble burst. In effect, the economy took a nose dive and a lot of people lost their jobs and had difficulty looking for a new one. There were also numerous banks which needed to and was bailed out by the government to be able to continue operations.
Going back to how consumer debt level has actually surpassed 2008 levels, it is an alarming development. There are a number of reasons why debt has actually crept all the way back up making think of having a recession proof budget. For one, student loans have been consistently increasing year on year. This has concerned a lot of college graduates especially those that are just about to start higher education. The cost of attendance is starting to push students away or make them seriously reconsider their options.
Auto loans have been increasing as well as more and more people are getting new wheels. Add credit card and mortgage loans, as well as other types of debt and your finances, are in for a ride. With this, you need to be on guard against financial setbacks especially the ones that would come from wrong financial decisions. In these instances, it is best to look for ways to make your finances recession proof or at the very least, strengthen it. This will allow you to handle financial challenges better and be able to stay away from piling up debt accounts.
Your household budget has to be on point
As you strengthen your finances, it would be a good idea to focus on your budget first. Doing so gives you a more accurate picture of your funds. As such, you would be able to have the necessary information at the tip of your fingers.This would enable you to make timely and informed financial decisions.
As you try and take control of your household budget, you might think that the more complicated it is, the better your budget would be. What you need to remember is that you need to simplify it as much as you can. You can start off by simply listing down all your income sources and then doing the same thing with all your debt and financial obligations.
Having this information handy gives you the chance to make budget adjustments as you go along. This is because your finances change over time. Your income, as well as expenses, would go up and down. As this happens, your budget lets you know how you can move your funds around to address these types of financial movements.
Diversify your income sources
It is an advantage to have a regular day job that provides you a regular and continuous pay. It is in itself great way to recession proof your finances. However, adding other streams of income makes you more proactive in addressing potential problems that can come your way. It is also a great way of making your finances more fluid.
If you have a full-time job but you are able to earn extra on the side with a side gig, you are able to increase your income. You might even have an online store that practically runs itself or even some business with family and friends. This is a great way to diversify your income and keep yourself protected.
This is because if you ever lose your day job, you have other sources of income to help you fill in that income gap while you look for a new job. Your side gigs might even open doors for you leading you into a new career. As you pursue hobbies and interest as a side gig, you just have to make sure that they are income-positive ventures to help you put funds into your budget.
Put together your reserve funds to make your finances recession proof
When the 2008 crisis happened, your reserve funds becomes your first line of defense against debt. Composed of your emergency fund as well as your rainy day fund, this would serve as your cushion when emergencies happen. If you ever lost your job and you were solely reliant on it financially, your emergency fund can cover your expenses for a few months.
This is the reason why a lot of financial experts suggests that you save up for a few month’s worth of your expenses in your budget. While you look for a new job which can sometimes take months, you are still able to pay for your financial obligations. You do not go down in debt borrowing left and right or running up your credit card just to make ends meet.
Pay down your debt
What makes it more challenging when you are faced with financial challenges is having to include debt payments within your finances. As you budget for food and utilities and other basic needs, your debt payments could take the backseat. What this does is it puts your finances as well as your credit score in peril.
This is one of the reasons why, as you strengthen and make your finances recession proof, it is a good idea to focus on paying off your debt obligations. CNBC.com shares that one of the best ways to accomplish that is through debt consolidation. This allows you to get a good grip on your debt while being able to lower down your monthly payments.
Know when to adjust your investment portfolio
One of the best ways to maintain a passive source of income is through investments. This can help you with future planning, especially for your retirement. One way to make sure that your investments are not only recession proof but smart as well is to have a good sense of how risk plays out as you get older.
While you are still young, risk might not bother you that much in the sense that you have a lot of years ahead of you. You can make up whatever you might lose. However, you need to taper down on that risk as you get older since you are going against time. One wrong decision could risk all that you worked hard for.
Gallup.com shares that there are only about 52% of Americans investing in the stock market. Though it is a great source of passive income, you need to carefully keep track of it especially as you get older. Your risk appetite should dwindle down as you age so you can protect your investments and stocks can be quite risky for older people.
All these money management tips can help you make your finances recession proof but you need to understand that there will always be challenges you cannot foresee. The best thing is to be as prepared as you can be at all times and focus on the things you can control.