Please welcome Ethel, from Legacy Based Living, who has written this guest post on how to financially thrive during a recession.
Ever since the start of the pandemic, the economy has been on shaky ground. While the current markets represent prevailing inflation, predictions for the near future are pointing towards a recession. Along with markets, this sentiment is represented among American households as well, as according to US News, 74% of consumers believe that a recession is right around the corner. The impact it will have on one’s finances will depend from person to person, but, as this article published by Bitter to Richer explores, there are various actionable steps you can start taking today to prepare yourself for the oncoming recession.
1. Create a New Budget
Download your latest bank statements and credit card bills and start scrutinizing every expense you have. Pinpoint expenses that you can cut back on, such as streaming subscriptions, online shopping, eating at restaurants, etc., and start eliminating them from your weekly spending. Even if the savings are around $20-$50 a month, within a year, it will save you upwards of $500, which will be better used towards paying off debt or creating an emergency fund to avoid financial difficulties arising due to uncertainties.
Ideally, your emergency fund should contain enough money to cover 3-6 months of expenses. Building this corpus will take time and consistency; hence it is best to start at the earliest. While you can accumulate this money in a high-interest savings account, an alternative is to buy a certificate of deposit.
2. Adapt Your Purchasing Habits
Start putting more emphasis on saving rather than spending, as having money in hand is one of the best things to do during a recession. If you were saving 20% before, try to increase it to 30% or whatever is realistic given your monthly necessary expenses. An effective way to increase savings is to buy cost-effective alternatives to products you frequently buy. Use this website to compare products, read customer reviews, and make an informed decision regarding purchases.
3. Reduce Your Debt Burden
The last thing you want during a recession is to spend most of your household income on paying off debt. Additionally, it is common for banks to increase interest rates during a recession as a way to increase income which ultimately puts additional financial pressure on customers as they need to repay much more than what they borrowed.
One key type of debt to keep an eye on is high-interest debt, such as credit card bills. Moreover, missing payments for consecutive months can significantly increase your repayment burden. Hence, prioritize paying off any existing credit card debt and start minimizing the use of credit to make purchases. While you can still use the credit within limits and avoid any penalties or interest payments by making timely repayments, it’s best to avoid undertaking new debt during a recession.
4. Re-Evaluate Your Job Situation
While this can be hard to hear, layoffs are a common occurrence during recessions. This is because when companies look to minimize expenses, one of the go-to methods adopted is to reduce their wage bill by laying off a percentage of their workforce. But layoffs can be hard to predict as they’ll greatly depend on company performance and prevailing trends in their specific industry. But as an individual, it is important to protect your best interests and be prepared for the worse by creating multiple income streams.
One of the best ways to do this is by starting a side business and selling products/services which will remain in demand even during the recession. Here are a few prominent options for you to consider:
- Drop shipping: As reported by the Census Bureau, one of the industries which remained strong during the pandemic and are expected to do the same in the coming years is e-commerce. Even during a recession, consumers will have demand for goods, whether it be for personal or business use. A drop shipping business will help you cater to this demand and earn revenue while not having to spend a penny on manufacturing or fulfillment, as this will be handled by your supplier.
- Learn a Skilled Trade: Similar to products, households will also require the services of plumbers, carpenters, and other repairmen to maintain their homes during a recession. Not only will learning a skilled trade help you save on your own home repairs, but it will provide you a great alternative with consistent work to pivot towards in the case of job loss.
- Digital Marketing: With more and more companies adopting a digital-first approach, the demand for digital marketers has skyrocketed. Running a digital marketing business will allow you to sell a plethora of services such as content marketing, social media management, email marketing, performance marketing campaigns, and more. Additionally, you’ll have the option to work with both local and international clients.
5. Purchase an REO Property
For those who have been saving up for a while and do not want to wait until the end of the recession to fulfill their homeownership dreams, buying real estate-owned (REO) property is a good option.
REO properties are homes owned by banks that they’ve re-possessed from defaulters or foreclosures. Given that banks are keen on getting these properties off their books, you’ll be able to purchase them at a cost lower than other homes on the market. But here are a few important things to keep in mind regarding an REO property:
- The property may not be move-in ready and could require minor or major repairs.
- The house could have major issues such as structural damage, and foundational problems due to lack of upkeep. Hence always hire a professional to conduct a thorough inspection and understand the current condition of the property.
- Conduct an appraisal to get a clear idea regarding its true value
You can find various REO homes for sale online or connect with a real estate agent who specializes in REO home sales. While you will still need to provide a down payment and show strong finances, consider working with the same bank that owns the property to finance a deal that benefits both parties.
If you find a property in relatively good condition, affording repairs will be much cheaper than buying a new home. As a result, you could save thousands of dollars which could be put to use towards paying off debt, increasing your emergency fund, or towards other expenses.
Making sound financial decisions will be key to maintaining strong finances and thriving during a recession, which at this point is almost a certainty. In the coming weeks and months, focus on prioritizing savings, cutting down on expenses, limiting spending to required products, and if required purchasing an REO property to significantly reduce the cost of homeownership.
This guest post was published by Bitter to Richer, where the goal is to reach as many people as possible and help them lead better lives, through financial as well as personal success. I try to say yes to most invitations to work on written stories or interviews & discussions. For more information, or a guest post request, please feel free to contact me today!
