In the midst of a long bull run, no-one wants to think about a recession. Whether on the news or in the headlines, speculations seem to exist everywhere. The following article will not help you determine the likelihood of a recession starting tomorrow, but will discuss best practices and ways to know if you are prepared!
Without further ado, let’s explore a few ways you can ensure your financially preparedness if calamity were to strike.
Start With Family
Do you have family members who depend on you as the breadwinner? If so, a top priority should be ensuring sufficient insurance plans.
Perhaps your employer generously covers insurance. If this is the case, you should take time to read into the details of the policy. Ensuring that your coverage is enough before an incident occurs prevents you from finding out at the worst possible time. By the same token, what if you were to lose your current position?
Unemployment rates can increase during a downturn, and so your employer-covered insurance policy should be a major consideration. Perhaps you might consider individual insurance? Fortunately, the advent of the internet has made comparing rates online an easy task for term life policies.
In any case, securing lower rates at a younger age for your family (in better health) is generally a good practice.
Consider Your Rainy Day Fund
Hopefully you have one. If not, consider saving 4-7 months of required life expenses in a separate savings account.
Having additional money available is a healthy practice, especially because you are not the person who gets to decide when there will be a downturn.
Some critical questions to ask:
- How much do I need to have for rent (or a mortgage)?
- What are my monthly expenses for food?
- Am I taking medication expenses into account?
- Are car payments included in my emergency fund plan?
Your home is the center of life for you and your family, and so we encourage extra emphasis on ensuring the money you set aside is enough to maintain home-life stability.
Cut The Fat Wherever Possible
Consider wants versus needs. While food, water, and shelter are of course essential to daily life, we have grown accustom to believing that we need more more than we actually do.
Consider the following expenses:
- Wireless connectivity
- Phone Plan
- Music Streaming
Although none of the above items are strictly speaking essential, you may find yourself hard pressed to be able to eliminate any one of the above categories. As an alternative, consider switching to a different plan, carrier, or service in order to cut costs.
As always, compromise is key (especially before and during a recession).
High interest payments (in the form of debt) are important to eliminate. Not only does debt compound in the face of financial trouble, but the thought of having debt can be mentally draining.
We recommend paying down debt early, while the markets are in good condition. By eliminating payments on credit cards, you can prevent ballooning balances. This recommendation is especially strong for those individuals who may be at risk of losing their position if a recession were to strike.
Consider Increasing Income
Perhaps you are concerned that your current rate of saving is not enough to get you through a recession. In anticipation of a recession, increasing earnings now can prevent a lot of head ache later.
While there is a lot of talk about supplemental income and “side hustles”, a general best practice is to excel in your current position, and work toward a promotion. If possible, we recommend the latter.
The Time Is Now
Perhaps a recession is not of concern to you. In either case, the tips mentioned above provide a good foundation to improve your financial health (and peace of mind).
Here at Castle Financial, we understand that you ultimately decide what makes you happy. Whether spending money now gives you the most enjoyment, or taking console in the safety net of zeroes in your bank account, only you can decide what brings you happiness.
If you need help with financial planning and investment management, Castle Financial is here for you in Monmouth County and nationwide with a complimentary consultation. We have assisted hundreds of clients like you in establishing financial freedom and saving for the long-run. Check us out on our website to get in touch – www.castlefinancial.com
While there are conflicting views on best practices for recessions, we are in no way, shape, or form providing absolutes. Please use the information provided as nothing more than a general guideline for any investment decisions.