The economic news of late does not seem supportive of a rapid economic rebound. In fact, for a growing number of individuals there is concern that the economy may be entering another recession. While only time will tell if the U.S. economy can skirt another recession, here are five steps that can be taken to mitigate the impact of a recession on your personal finances.
- Make sure you have some savings. Adding to savings can be difficult, especially if the household income has stayed flat or even fallen. Also, the low rates that banks pay on savings accounts are hardly an incentive to add to your savings. However, a well-funded savings account can be just the extra needed to meet bills and/or the inevitable emergencies that life throws at us. Being able to withdrawal money from a savings account to fix a broken appliance, pay for an unexpected car repair, or an extra doctors visit is better for your financial health than adding to your debt by using a credit card.
- Make sure your insurance is paid. This means your homeowners, auto, life, disability and medical insurance. One of the leading causes of bankruptcy in the U.S. is medical bills. While you may not have lost your job, many companies are increasing the amount of premium the employee is responsible for paying. Sometimes these increases are dramatic and when budgets are tight, one of the last things you want to eliminate is insurance for you or your family. A car accident cannot only result in significant auto repair bills, but also may result in injuries that prevent you from working for a period of time. Auto insurance will help fix your car; disability insurance can help you meet monthly bills while you are physically recovering.
- Create and live on a budget. A budget can be a good way to help reinforce the classification of wants and needs. Setting aside a certain amount of money each month can not only help you financially, but can also help financial decision making. There is nothing like a set amount that can be spent to focus your decision making on what constitutes a necessity and what constitutes a desire.
- Be conscious of your spending when eating out. The stress of work, especially if your company is downsizing and the prevalence of two-income families, makes it difficult to always prepare a meal to eat at home. Statistics indicate that eating a similar meal at a restaurant that you fix at home can cost twice as much. It is probably unrealistic to avoid eating out entirely, but limiting the number of times you eat out in a week can have a significant impact on your budget. You could even consider using the money you save on eating out as money that can be added to your savings account.
- Visit your financial adviser. A visit to your financial adviser for a financial physical can be beneficial. Like your annual physical, a financial physical should review your entire financial situation. This process could uncover additional areas you could save money and/or pay down debt and/or additional strategies to help you navigate another economic downturn.
While preparing for natural disasters can help mitigate the losses, preparing for a recession can lessen its impact on your family’s finances.
FPA member Kevin Moore, CFP®, AIF®, is a principal at i*financial in San Antonio, TX. Securities and advisory services offered through Commonwealth Financial Network®, member FINRA/SIPC , a registered investment adviser. Strictly intended for individuals in: CA, CO, CT, DC, LA, MD, MN, NC, OK, OR, TX, VA, WA, WI . No offers may be made or accepted from any resident outside these states due to various state and registration requirements regarding investment products and services.