It doesn't matter how well your financial life is going, economic problems can strike at any time, which underscores the need to recession proof your life. You might lose your job, or your boss could cut your hours to decrease his overhead costs. At the end of the day, it's important to remember that there is no such thing as true security in this world. For this matter, you should always prepare for the worst. You can't predict the future, but you can take steps to recession proof your life.
1. Increase Your Emergency Fund
To recession proof your life, you need to view savings as a priority, and not an option. Having cash in the bank might be the thing that keeps you afloat if you lose your job or deal with other hardships. Save at least 10% of your pay each week, and try not to spend large sums of money you receive, such as a work bonus or a tax return. Aim for a cash reserve that's equivalent to six or eight months of your income.
2. Pay down Your Debt
The less you owe, the easier it is to deal with financial problems that come your way. You may not be able to alleviate all your debt, such as a large mortgage loan or car loan. But if you have credit card debt or smaller installment loans, develop a plan to pay off these balances. Pay more than your minimums each month or liquidate assets to generate extra cash. Once you’ve paid off smaller debts, start working on your large debts. Round up your mortgage loan or car loan, or make an extra principal payment each month.
3. Live within Your Means
This is a hard concept for some people to grasp, especially in a society where having the best and newest of everything rules. However, buying just to keep up with others, or spending too much on housing and transportation will make it extremely difficult to keep your head above water during tough economic times. When it’s all said and done, if all your income goes to bills and you’re not saving, chances are that you’re living outside your means. To get on the right foot, consider selling your car and getting something cheaper, hanging out less, and perhaps moving to a cheaper place.
4. Refinance Your Mortgage Loan
The Mortgage Bankers Association predicts that mortgage rates will increase to 5% by the end of 2014. What does this mean? Simply put, if you haven't refinanced your home loan and taken advantage of low rates, now’s the time to act. This can drop your monthly payment and free up cash for savings.
5. Get Another Income Source
Your job might seem pretty stable, but that can change any day. Look for ways to make extra cash on the side. There are plenty of side gigs to choose from. You can babysit a few evenings a week or on the weekends, or you can clean one or two offices a week. The money adds up quick, and anything you generate can go into your emergency fund.
6. Shop for the Best Banking Rates
When shopping for a savings account or an interest-checking account, don't pick any random bank. Bank rates can vary by financial institution. Therefore, it's vital that you shop around and know what's available. Acquiring the best rate can grow your savings at a faster pace.
7. Downsize, Even if You Don't Have to
If your mortgage or rent payment is within your means, downsizing might be the furthest thing from your mind. However, if you’re living in a home that’s too big for you or your family, why not scale down? You might be able to find a suitable space for less, which lowers your monthly expenses and grows your savings faster.
Recession is an ugly word that nobody likes to think about. But as history has proven, economic conditions can shift rapidly. If you can prepare for these shifts now, you might survive the storm. How have you “recession proofed” your life?