How to Prepare for a Recession, 9 Money Moves to Make Now, low interest rate loans - GoReviewMarket - Specializes in sharing useful quality products with everyone (2024)

How to Prepare for a Recession, 9 Money Moves to Make Now, low interest rate loans

Navigating through an economic downturn can have significant implications for your finances. Being equipped with the knowledge of how to ready yourself for a recession can play a crucial role in mitigating potential financial setbacks.

To effectively prepare for a recession, consider adopting prudent financial strategies such as reducing debt, bolstering savings, and establishing diverse income streams. Another essential step is safeguarding your financial stability by cutting down on expenses and adhering to a well-structured monthly budget.

Preparing for a recession mirrors the approach taken in readiness for natural disasters. Just as individuals residing in hurricane or wildfire-prone areas have predefined plans to ensure the safety of themselves and their families in the face of adversity, a similar proactive stance is needed when confronting an economic slowdown.

For those unfamiliar with firsthand experiences of economic downturns, understanding how to prepare for a recession becomes pivotal. In this context, I am offering some valuable tips today that can not only help you endure but also prosper amidst an economic downturn.4

What Is a Recession?

A recession, in basic terms, denotes a contraction in the economy. During a recession, consumer spending decreases, companies may cut their budgets, leading to a reduction in jobs, and overall economic growth decelerates.

For a more technical perspective on the definition of a recession, the National Bureau of Economic Research (NBER) describes it as follows:

“A recession is not merely a short-term dip in economic activity; instead, it is a substantial decline in economic activity that extends across the entire economy, persisting for more than a few months. This decline is typically evident in real GDP, real income, employment, industrial production, and wholesale-retail sales.”

Recessions vary in severity and duration. The COVID-induced recession of 2020, for instance, was brief, lasting only two months, marking it as the shortest in U.S. history.

On the contrary, in more dire circ*mstances, a recession can persist for several years. The Great Recession, spanning from 2007 to 2009, stands out as the lengthiest recession since the Great Depression.

Recessions pose challenges for ordinary individuals due to various negative repercussions. Some of these include:

1. Job Market Challenges: Finding employment becomes more challenging as companies may reduce payrolls or halt hiring.
2. Limited Income Growth: Employers often cut back on pay raises and promotions, limiting opportunities for income growth.
3. Restricted Borrowing: Banks may tighten lending criteria due to concerns about consumer payment defaults.
4. Investment Depreciation: Investments may lose value if a recession triggers a stock market downturn.
5. Inflation Impact: Inflation may rise, causing an increase in prices for certain goods and services during a recession.

While a recession is not as severe as a global economic downturn (depression) or stagflation, it is nonetheless an undesirable prospect for most individuals. However, there can be a silver lining. If a recession coincides with rising interest rates, it can be advantageous for savers. For example, CIT Bank is currently offering one of the most competitive rates for its high-yield Savings Connect account.

How to Prepare for a Recession

Recessions are inherently unpredictable, lacking a precise timeline for their onset or conclusion. The key takeaway is the importance of readiness, as being well-prepared for the potential occurrence of a recession can facilitate a smoother navigation through such economic challenges. Consider the following nine tips on how to prepare for a recession and safeguard your finances.

1. Make a budget – Apply for personal loan

Creating a budget is the initial and crucial step in recession preparation, especially if you haven’t established one yet.

A budget serves as a monthly spending plan, outlining how you intend to allocate your income. By tallying up your earnings and subtracting your expenses, you gain insight into your financial standing (whether you have surplus funds or are potentially overspending).

For a detailed approach to budgeting, refer to this beginner’s guide, which provides a comprehensive overview of how to formulate your monthly spending plan. Additionally, tracking your expenditures for a month allows you to better understand your cash outflows, enabling more accurate budgeting.

2. Evaluate your spending – apply for personal loan

After establishing your budget, the subsequent measure in recession preparation is straightforward: reduce unnecessary expenditures.

In the event of an income decrease during a recession, avoiding unnecessary purchases becomes essential. Trimming excess spending can streamline your budget effectively.

An excellent tool for this purpose is the Trim Financial Manager app. This personal finance tool can assist you in:

1. Eliminating costly bank fees.
2. Canceling unwanted subscriptions.
3. Negotiating bill payments for potential cost reductions.
4. Automating savings.
5. Lowering APRs on high-interest credit cards.

If you’re already using Trim, then you probably know what’s great about it. And if you’re not, you cansign up for Trimand give it a try!

3. Use cashback and coupon apps to save

In addition to trimming unnecessary expenses, incorporating strategies to save while spending is a prudent approach to recession preparedness.

Cashback apps offer refunds when you make purchases at affiliated stores, while coupon apps can reduce costs during checkout. Both can contribute to saving money on everyday items such as groceries, household essentials, and clothing.

Here are some recommended cashback and coupon apps to consider:

1. Ibotta: Earn cashback by shopping at supported stores. Simply take a photo of your receipt, upload it to the app, and receive cashback. You can also link your store loyalty cards for instant cashback, and new users can receive up to $20 in bonus cash.
2. Rakuten: This app allows you to earn cashback for both in-store and online purchases. The Chrome browser extension provides exclusive coupon codes, enhancing your savings. New users have the opportunity to earn up to $40 in cash bonuses.
3. Drop: Utilize Drop as a cashback portal, earning free money by browsing deals on the site, making purchases with your credit card, and earning cashback. It’s a straightforward way to accumulate cash back alongside credit card rewards.
4. Honey: A browser extension tool, Honey assists you in saving money when shopping online by automatically applying coupons at partner merchants. It also aids in finding the best prices on Amazon.
5. Dosh: The Dosh app simplifies earning cashback by linking a debit or credit card, spending at partner stores and restaurants, and receiving up to 10% cashback.

These apps are free to sign up for and use, offering a variety of options to save money and earn cashback based on your preferences and spending habits.

4. Build your emergency fund – financial transaction

If you’re utilizing cashback and coupon apps to economize, it’s crucial to have a strategic plan, especially considering bolstering your emergency fund as a wise measure for recession preparedness.

While the widely accepted guideline for emergency savings is three to six months’ worth of expenses, the COVID-19 pandemic highlighted the accelerated depletion of many Americans’ emergency funds.

Determining the right amount to save for emergencies is a personalized decision, taking into account factors such as:

1. The number of dependents you have.
2. Your total household income.
3. Monthly expenditures and the potential budget adjustments if needed.
4. Job security and the ease of finding alternative employment if necessary.

Once you establish a target amount for your emergency savings, it is crucial to place your funds in an optimal location, typically:

1. A liquid account accessible promptly if needed.
2. Ideally, a high-yield savings account offering an attractive interest rate.
3. A bank or financial institution that is FDIC-insured.

Online banks often meet all these criteria. If you are seeking a reliable platform for growing your money, CIT Bank’s Savings Connect Account stands out as a noteworthy option. With a straightforward online account opening process requiring just $100, deposits earn competitive interest rates, and there are no monthly fees involved.

5. Pay down debt – advance loans

Managing debt is pivotal for navigating a recession successfully, and it is wise to reduce it as much as possible to alleviate financial strain on your budget.

Paying down debt involves employing basic yet astute strategies, such as:

1. Prioritizing High-Interest Debt: Tackle high-interest debt first, as it typically incurs the most substantial costs.
2. Addressing “Bad” Debt First: Prioritize paying off “bad” debt, such as credit cards, before addressing “good” debt like a mortgage, as the former generally carries higher interest rates.
3. Avoiding Accumulation of New Debt: Refrain from adding new debt to your existing obligations, which means avoiding taking out loans or applying for credit cards.

Various debt repayment methods, including the debt snowball and debt avalanche, can be employed. If recession preparation is a concern, consider focusing on eliminating debt incurring the highest interest or fees.

To create a personalized debt repayment plan, follow these steps:

1. Review Your Budget: Identify extra funds that can be directed towards debt repayment.
2. Prioritize Debts: List debts in the order you intend to pay them off.
3. Establish Timeframes: Determine a repayment timeframe for each debt based on your monthly payment capacity.
4. Consider Biweekly Payments: If possible, make biweekly payments to reduce interest and finance charges.
5. Automate Payments: Opt for automatic payments, particularly for loans like student loans or car loans, to benefit from autopay discounts if offered by the lender.

To streamline and organize your debt plan, consider using services like the Tally App. This app aids in saving on credit card interest and accelerating balance payoffs. The average Tally user saves $4,185 over five years, making it a worthwhile tool for those aiming to become debt-free. Explore more about Tally now.

6. Pay attention to interest rates – low credit score loans

When contemplating recession preparedness, it’s crucial to pay attention to the dynamics of interest rates. This involves considering:

1. Savings Earnings Rates: Evaluate the rates at which your savings are earning.
2. Debt Interest Rates: Assess the rates associated with your debts.

During a recession, interest rates typically decrease. The Federal Reserve, responsible for setting interest rate policies, may lower rates to incentivize borrowing and stimulate economic activity during a slowdown.

Lower interest rates imply reduced costs for loans and credit cards. For instance, individuals with a good credit score may benefit from lower rates when refinancing mortgages or student loans. This presents an opportunity to explore avenues for minimizing the financial burden associated with loans and debts.

The flip side of interest rates involves the returns on your savings.

When the Federal Reserve reduces rates, banks generally offer lower interest payments to savers. If your money has been parked at a traditional bank with a meager rate, such as 0.01% (commonly offered by many large banks), a rate drop won’t be advantageous for you.

Transferring your savings to a bank with more favorable rates, such as CIT or another online bank, is a relatively straightforward process. It’s a consideration worth exploring if your goal is to maximize interest earnings on savings in anticipation of a recession.

7. Review your portfolio – borrow lend

Growing your wealth involves investing, and the challenge in preparing for a recession lies in the inherent unpredictability of the stock market.

Despite potential uncertainties, it’s not advisable to hastily withdraw from investments when contemplating how to navigate a recession. However, it is crucial to have a clear understanding of where your money is allocated and the composition of your investment portfolio.

Diversification, the practice of holding different types of investments, is vital for weathering economic fluctuations. Relying on a single stock or concentrating on a specific sector can expose your portfolio to undue risk if that particular investment encounters setbacks.

Engaging a financial advisor can be instrumental in making informed decisions on where and what to invest in, ultimately recession-proofing your portfolio.

For those without the resources to hire an advisor or those just starting their investment journey, micro-investing apps like Acorns can be a viable option. Acorns allows you to build a portfolio of exchange-traded funds with spare change by rounding up your transactions. Starting with as little as $5, Acorns even provides an initial $5 boost when you sign up for a new account.

If you’re a seasoned investor, consider transferring your portfolio to an online platform with minimal fees. Platforms like M1 Finance, for instance, do not charge commissions or markups on trades, providing a cost-effective solution for managing your investments.

8. Reevaluate your financial goals – financial transaction

Establishing financial goals is a proactive strategy to stay ahead, and when considering how to prepare for a recession, it boils down to prioritizing your finances.

Your financial priorities list could include:

1. Prioritizing Essential Bills: Ensure timely payment of essential household bills.
2. Covering Basic Needs: Allocate funds for basic needs such as food and clothing.
3. Contributing to Emergency Savings: Add a monthly contribution to emergency savings.
4. Managing Debt: Meet at least the minimum payments on outstanding debts.
5. Funding Retirement: Contribute to retirement savings.
6. Saving for Education: Set aside funds for your children’s college education.

In the face of reduced income during a recession, it becomes necessary to evaluate and decide which goals remain feasible and which may need to be temporarily deferred. For instance, one may choose to continue investing and saving for retirement but adjust the goal to meet the minimum contribution required for the full employer match in a 401(k).

When reassessing financial goals in light of a potential recession, it’s essential to ensure they are realistic. Additionally, be prepared to formulate a contingency plan in case financial circ*mstances change, necessitating an adjustment in goal priorities.

9. Find new ways to make money – financial transaction

One of the most prudent financial strategies in preparing for a recession involves exploring avenues to augment your income. An increased income not only alleviates stress related to bill payments but also facilitates savings growth and debt reduction.

While traditional methods such as seeking a promotion, requesting a raise, or changing jobs may not always be viable during a recession when companies are scaling back, there are alternative approaches that offer potentially limitless earning potential, particularly through side hustles.

Engaging in various side hustles, both online and offline, provides opportunities to generate extra income. Some recommended ways to make money in your spare time include:

1. Becoming a pet sitter with Rover.
2. Earning money by participating in surveys.
3. Getting paid for writing online.
4. Starting a blog for potential income.
5. Earning money for weight loss achievements.
6. Creating and selling online courses.
7. Teaching on platforms like Outschool.
8. Becoming a virtual assistant.
9. Learning proofreading skills.
10. Earning gift cards through shopping rewards programs.

Understanding how to prepare for a recession is a valuable skill that can mitigate financial challenges during economic slowdowns. Since economic downturns are an inevitable part of the business cycle, implementing these tips can help you navigate a recession with minimal impact on your finances.

See more: Financial transaction