By: Charlestien Harris
Maintaining your finances can be overwhelming and stressful even when the economy is in favorable condition. Everyday expenses, work, and family obligations can demand our immediate attention, but it is just as important to also spend time on a financial plan for the future.
An economic recession is defined as a period of reduced economic activity. It may involve a slump in the overall economy, reduced wages, layoffs, and financial hardship for millions of Americans. But having a solid financial plan in place can create the financial stability needed to weather the effects of a possible economic downturn.
Below there are some suggestions that may help you prepare for economic emergencies.
- Eliminate your debt. Debt often can’t be avoided, but there are ways to reduce the amount of debt you have. Eliminating your debt will eventually increase your cash flow. If you have substantial debts other than a mortgage, you should focus on paying off those balances first. You can start by reducing the number of credit cards you have. (You only need one!) You can also try to negotiate with your creditors for lower interest rates. Paying your bills in full and on time will allow you to avoid high interest rates and late fees. If you’re unable to make full payments, aim to pay more than the minimum due to avoid paying more in interest and fees.
- Keep track of your monthly expenses. Monthly expenses will add up quickly if you’re not careful. Keeping track of your fixed expenses is crucial to surviving all seasons and avoiding unexpected events. Start by reviewing all of your monthly expenses and separate your needs, such as utilities, rent, and food, from your wants, like a new cell phone or a new vehicle. Once you realize how much cash you need for the basics, you can start reducing unnecessary expenditures and saving money.
- Look for part-time employment. When times are tough, having an additional source of income can mean the difference between sleeping at night or tossing and turning over financial troubles. You can start by increasing your savings in times of plenty by picking up extra work. A part-time job or small business not only brings in extra income, but also provides you with a safety net should your first job fall victim to a recession or a possible layoff. This tip may just provide you with the financial security you have been seeking.
- Educate yourself on personal finance. There are professionals that can help guide you on your financial journey, but you should still keep up with financial trends yourself on a regular basis. Don’t rely on the experts to do the work for you; one of the best investments you can make is in educating yourself. You might not become an expert on economics, but you will have a better understanding of how the economy works and how it affects your personal finances. Take an online course or register for a finance course at a local junior college. There are also plenty of good books dedicated to managing personal finances to explore as well.
- Identify community resources. Oftentimes, a number of community programs are available to help during an economic crisis. These can range from emergency funds for shortfalls to pay for utilities, food, and rent. Find out what you are going to need and see if there is an institution, organization, or individual who can provide it, even if it is only temporary. Knowing what resources are available in your community can mean the difference between financial survival or possible financial ruin. Keep an updated list of those resources for future reference.
- Avoid taking on someone else’s debt. Many people are going through hard times when the economy wavers. Avoid making any financial decisions out of fear or allowing family and friends to push you into unexpected debt. In addition, you should try to not take on additional debt by co-signing for someone else’s debt. It comes naturally for us to want to help others through their difficult times, but if this is also going to place a significant burden on ourselves, we should avoid this path. You should focus more on strengthening your own budget, expenses, savings, and financial goals first, and then direct your attention to how you can help other people do the same.
No matter what state the economy is in, putting these healthy financial strategies into action can help improve your budget, reduce your stress, and give you the peace of mind you have been looking for. The best way to increase your savings and prepare for unexpected events is to track your budget, build up your emergency fund, and seek opportunities to improve your finances.
Whether you experience a recession or an economic boom, you still need to watch your personal finances to make sure you are maintaining a secure and healthy financial picture for the present – and for the future.
For more information on this and other financial topics, you can email me at Charlestien.Harris@southernpartners.org, or call me at 662-624-5776.
Until next week — stay financially fit!