By: Charlestien Harris
Living through a possible recession requires more than just cutting back on your personal spending.
But first, let’s define “recession” so we can fully understand why managing our personal finances during this time is so important. A recession is a significant decline in economic activity that is widespread and lasts for more than a few months. Some of the indicators of a recession can be rising levels of unemployment, falling retail sales, and negative gross domestic product activity and consumer spending levels.
So, you might be asking yourself: How do I survive in this changing economy? Well, first, don’t panic. Here are some steps you can take to navigate this very uncertain time in our economy as well as your personal finances.
Develop a plan of action.
In this changing economic climate, your current personal financial plan may seem inadequate. In every financial strategy, the basic principle is to set goals and plans according to personal choice and the current economic conditions. When the economy is not stable, your financial plan is bound to take a direct hit in some areas. In times such as these, having a plan in place can help you to navigate this uncertainty and instability, and provide an anchor to help you avoid a financial crisis.
Update your resume.
Employers are looking high and low for applicants to fill open positions. This can be an overlooked item because most people don’t expect to lose their job, and have probably not updated their resume in a while. Keeping an updated resume can help you transition into a new career, showcase your current skill set, and give a potential employer a snapshot of your previous employment history.
Increase your emergency fund.
Having an emergency fund is essential to your personal finance plan. If you can, try to set aside three to six months of your monthly income to cover your basic expenses. When COVID-19 hit, no one knew how devastating it would be health-wise, or how it would affect the personal finances of everyone across the globe. Money set aside for emergencies can be the lifeline to help you survive until your financial circumstances change or improve. Try to keep your emergency fund in a separate account so it will be available when the time comes, and the money will be there if and when the need arises.
Cut spending and live within your means.
Downsizing and learning how to live on a tight budget can be a great strategy. If you can learn to make do with less, you can increase your savings and you might not find yourself struggling to adapt to a new lifestyle when a recession hits.
Living on a budget isn’t as difficult as it sounds.
Despite what others may say, being frugal isn’t about pinching pennies or depriving yourself of things that bring you joy and comfort. It’s actually about making conscious spending choices that reduce discretionary expenses, with very minimal impact on your lifestyle. Now would be a good time to get a better understanding of what you truly value, and focus your efforts on those areas of your budget that can be adjusted.
Pay down your high-interest-rate accounts.
Try to get rid of your credit card debt now, if you can. With the potential of rising interest rates, the best move you can make is to pay off those credit card balances and other accounts with adjustable interest rates. One way to tackle the debt is to get a low-interest personal loan. Another option is to try and negotiate with your credit card company for a lower rate. If you are a long-time cardholder with a positive payment history, you may be able to explain your financial situation to your creditor and possibly lower your rate.
Review your insurance coverage.
Another area of possible savings is shopping around for lower insurance rates. You could be carrying too much insurance, or you could be getting the same coverage from another provider at a better price. Having excellent insurance coverage can prevent one crisis from piling on top of another, but it is also worth the time and effort to make sure that you have the coverage you really need and not just a bare minimum.
Life can be unpredictable, at best. But if there’s anything you can do to avoid possible financial ruin, it’s to be prepared and careful. With the right financial plan in place, you can turn a potential financial crisis into a mere temporary setback.
If you are struggling with your personal finances, you should seek assistance from a certified financial counselor. Southern Bancorp Community Partners has four Credit/HUD-Certified Housing Counselors on staff to address your financial concerns. If you need additional information on this or other financial topics, please email me at Charlestien.harris@southernpartners.org, or call me at 662-624-5776.
Until next week — stay financially fit!