The economy is the main concern of the day. Despite three interest rate hikes by the Federal Reserve earlier this year, inflation is soaring with no sign of abating. And with further rate hikes on the horizon, many fear that the Fed’s efforts to slow economic growth could lead to a recession.
Veterans face unique dangers during economic downturns. They don’t have to worry about job security as much as civilians, and military retirees receive income for life regardless of stock market fluctuations. But they also lose substantial job security and tax benefits when they leave the military. Even though you now have a stable income, you still need to protect your finances against a possible economic downturn.
A recession or market downturn is inevitable as part of the business cycle. If you are unprepared, the consequences may require you to adjust to your lifestyle and financial goals and make difficult choices. Taking precautions to protect your finances can make a huge difference, so be sure to do these 5 things before the next economic downturn hits:
Set your financial priorities with a budget plan
This is why it is essential to understand your financial situation. You know how much cash you have on hand and how much you can quickly access in an emergency. You also need to know how much debt you currently have and how much monthly living expenses.
Now is the time to assess your current expenses and plan your needs over the next six months. Let’s say you are well prepared for a recession, job loss or other financial hardship. In this case, you will have an emergency fund that covers three to six months of living expenses and hopefully a healthy retirement nest egg.
Start by developing a basic understanding of your spending habits and creating a budget. Calculate your household income from all sources, including you, your spouse/partner, and any secondary activities that bring money into the household. Include income from investments and other sources, such as child support.
Next, list your monthly expenses, such as rent or mortgage payments, utilities, groceries, medical bills, childcare costs, home and garden maintenance. automobile, payment of debts and insurance premiums, as well as all other regular expenses, including those paid only once a year. year. Add it all up to see if you’re spending more, less, or about as much as your monthly take home pay.
Finally, prioritize your essential expenses and figure out the bare minimum you can spend in any given month to get by in case you or your spouse/partner loses your job.
Your budget may need to be adjusted in anticipation of a recession. Reduce non-essential expenses, such as entertainment, cable, and clothing. Although it is unrealistic to eliminate all discretionary spending, it is essential to distinguish between wants and needs. Examine your finances for areas where you may have overspent.
Increase your income and then your savings while you can
A crucial step in managing your cash flow is analyzing your expenses to determine what you can exclude from your budget or put on hold. Don’t forget though that you can also work on improving incoming cash.
There are many ways to increase your income. The right path for you will depend on your circumstances, skills, and passions, but here are some options to consider:
- Ask for extra shifts or overtime at work, if possible.
- Look for part-time jobs that you can add to your current responsibilities.
- Self-employment or side consulting can also help you increase your monthly income.
- Accept additional responsibilities or projects at work as leverage to better position yourself for promotion.
And when you increase your income and decrease your expenses, you will have additional monthly cash flow. You can use the additional funds to:
- Increase your emergency fund, especially if you fear a recession and the possibility of losing your job.
- Increase your contributions to your retirement account to build long-term financial security.
- Add to your investment portfolio outside of retirement, for example, by opening and funding a brokerage account (or increase the amount you invest each month if you already have a portfolio outside of your retirement savings)
Make long-term investments
When contributing money to the market, long-term investors should use the cost average. When you calculate the average cost, you spend the same amount on a consistent and predictable schedule.
To protect your finances and investment portfolio during a recession, you need to keep investing even if the market is down. This is especially true when the market is down. If you only invest when demand is increasing, times are good and everyone is optimistic, you will pay higher and higher prices. And if you stop investing when the market goes down, you will never be able to take advantage of falling market prices.
Contribute a portion of any bonus or raise to your TSP. And don’t let the fear of a market downturn tempt you to be too cautious with your investments. Stocks have outperformed other long-term investments, and if you panic and pull your money out of the market, you’ll miss out on the benefits when the market recovers.
Make sure your investments match your timeline. A target date or lifecycle fund, such as the TSP’s L fund, creates a diversified portfolio based on when you intend to withdraw funds and gradually transitions to more conservative investments.
Work on paying off your debt
Over the next few months, you might be concerned about paying off unpaid debts such as credit card bills, utilities, or student loans. If you lose your job, you may have to forgo paying one or more of these bills, so knowing which ones you need to pay is critical.
After all, if you lose your job, you might not be able to pay all your bills on time or in full each month. And it will have an immediate effect on your credit ratings.
As a general rule, doing everything possible to keep your credit scores intact is essential, but this may not be possible during a recession. Therefore, you need to prioritize how you pay your bills so that your available cash can cover as much debt as possible.
Remember, if you’re struggling to make your minimum monthly payments and can’t see a way out, it might be time to look into debt relief options. Debt consolidation allows consumers to replace their unsecured debt with a new affordable monthly payment plan. This debt relief option aims not only to consolidate debt into one payment, but also to replace high-interest debt with a low-interest loan or line of credit, thereby reducing overall costs and potentially accelerating reimbursement.
Do not make hasty or costly decisions with your money
Now is not the time to throw your money into the unknown or take risks you haven’t thought of. This is especially true for any financial decision that will tie up a large portion of your cash flow, limit your flexibility, or put a very high fixed cost in your budget.
If you can put off making big financial decisions that could put you in the wrong place, you should. In the meantime, you can work on saving money and investing money to build your wealth.
This puts you in a better financial position in the long term, no matter what happens to the economy in the short term. It can also help you and your budget through tough economic times by making you and your budget more flexible and adaptable.
Ultimately, one of the best ways to protect your money from a recession is to keep things in perspective. Don’t make a short-term decision on something that should be a long-term game. Recessions are also short-lived. Whether or not there’s a recession soon, it’s important to keep an eye on the big picture and be prepared for whatever comes our way.
Although a recession can be a scary time, the best thing you can do to prepare is to take action now. High-speed news stories about higher gas and food prices or talk of a possible world war are frightening. But don’t trade on the news. Building long-term financial security takes a steady hand and a cool head. You can find reliable information online about what you need to know about money, which can help you get your finances under control during these difficult times. Now more than ever, knowing more about money is important to feeling good about where you are, no matter what comes next.
Otherthe choir was: Lyle Solomon is a California licensed attorney. He has been affiliated with law firms in California, Nevada and Arizona since 1991. As Senior Counsel for Oak View Law Group, he provides advice and writes articles to help people resolve their legal issues. indebtedness. You can connect with him on Linkedin or tweet him on @lyle_solomon