Insider experts choose the best products and services to help you make smart decisions with your money (here’s how). In some cases, we receive a commission from our partners, however, our opinions are our own. The terms apply to the offers listed on this page.
- I am a financial planner and I have four tips to protect your finances from the recession.
- Start by increasing your income – ask for a 7-10% raise or find a side job to earn extra money.
- Plus: Put your money into a high yield savings account – you can earn around 3% interest right now.
“How do we know we’re in a recession? Are they announcing it, like?” My friend and I laughed at her question.
If you’re reading the news, it looks like we’ve been entering a recession for months and we’re all waiting for the official news with bated breath.
The official definition of a recession is a period of economic decline in which GDP (gross domestic product – all the things we make and sell in a given period of time) falls for two consecutive quarters. This means that a recession cannot be officially declared until six months after it has started to occur.
I started doing financial services in March 2008 when I was 22, just weeks after the large investment bank Bear Stearns went bankrupt. By March 2009, the stock market had officially lost 40% of its value.
The Great Recession technically lasted from December 2007 to June 2009 and since then the stock market has only risen, along with GDP.
We have just experienced the longest bull market in economic history, with the stock market rising in value for 11 consecutive years. Most bull markets last an average of five to seven years. This means that throughout the adult life of my generation, we have only seen the stock market rise.
Despite more than a decade of stock market prosperity, the negative effects of the Great Recession have been long-lasting, especially for communities of color. An ACLU report in 2015 found that by 2031, the average wealth of black households will be nearly $ 100,000 lower than if the Great Recession had not occurred.
An impending recession can feel overwhelming and as if your finances are out of control. While there is no way to predict how the recession will affect your finances, there are things we can control. Here are four ideas to get you started protecting your finances from the recession right away.
1. Find ways to increase your income
Diversifying your income streams or increasing the income you already have is the first place to start strategizing.
If you are in a position to ask for a higher raise to keep up with inflation, consider asking for at least a 7-10% increase on your job.
If not, now is the time to think about adding an additional income stream, whether it’s getting a second temporary job, finally putting a product on Etsy, or monetizing a skillset in a service.
2. Consolidate your debt in fixed rate loans
If any of your debts have variable interest rates, consider moving them into a loan with a fixed interest rate so your interest rate doesn’t change.
For example, if you have credit card debt, interest rates have likely gone up. Consider taking out a personal loan to pay off credit cards if the interest rate on the loan is fixed and equal to or less than your credit card debt.
Just make sure you can still afford the monthly payment – personal loans require payment of principal and interest, which is ultimately a good thing, but it could increase your monthly bill.
3. Decide which “cravings” are non-negotiable, even in difficult times
I have had clients who have lost their jobs and have confessed to me that they spent more money that month than when they were hired. This is not an anomaly, it is a human and natural reaction to the feeling that everything is messed up, so why not get a lobster with your steak.
Purchases that you have been told to be frivolous are most likely purchases that fill your willpower and make you feel like you are.
Instead of trying to cut these purchases from your budget, give yourself permission to include them! When you give yourself permission to look forward to buying a cup of coffee or buying shoes here and there, you can truly enjoy it and allow it to give you life.
4. Move your money into a high yield savings account
While we see interest rates on mortgages, auto loans, and credit cards rising, we are also seeing interest rates on high-yield savings accounts rise, with some banks paying interest of 3% or more. If you haven’t started saving in a high yield savings account, now is the time.
When transferring your money into high yield savings, also consider increasing your savings amount by 10%. For example, if you’re saving $ 100 per month, save $ 110 per month. If you don’t save regularly, choose an amount to automatically transfer into your savings.
Get over it together
There is understandably a lot of fear and uncertainty right now when it comes to your finances, which means it’s even more important to focus on the things we can control. It is also an important time to start practicing collective care as some of us will get through this recession more easily than others.
If you are able, add a line item to your time or money budget to participate in mutual aid or give directly to friends in need. If you are struggling, find ways to reach out to your friends and the wider community for help.
While we can’t individually prevent a recession from occurring, we can make sure we all get through it together.