There’s been an awful lot of talk in the media lately about the economy and a possible recession. It seems that the sky is falling and the US economy is about to collapse. At least, that’s what everyone says. So if everyone says so, it must be true, right? In many cases, our economy is actually very strong and still growing. However, several large market segments are indeed slowing way down. You may live in an area where a stagnant industry can impact you significantly. Are you financially prepared for such a downturn? Here are the top five things you can do to make sure you are ready if it happens to you.
1. Establish a priority based budget. To be successful in your personal finances, you have to live on less than you make. This is easier said than done. To help accomplish this, spend every dollar on paper before the month begins. Take care of your necessities first – credit cards are not more important than your home.
2. Delay any major purchases; especially if it requires debt to bring it home. Borrowing more money puts you in a position of vulnerability when the economy turns sour.
3. Get some money in the bank fast! Save up a thousand dollars to get you through emergencies such as car repairs, medical emergencies, etc.
4. Begin paying off debt as quickly as possible. Pay off your smallest balance first while making minimum payments on your larger debts. This will help your money gain traction and give you small emotional victories along the way.
5. Once your debts are paid off, continue saving to build your emergency fund. You need three to six months worth of your expenses saved up to get you through a “rainy day” period, such as a job loss or short term disability. That gives you enough money to survive for a few months until you get back on your feet.
While there’s no way of predicting the future, there’s nothing better than having the peace of mind of knowing you have a plan to handle rough times when they happen, whether it be a national recession or a personal recession such as a job layoff. These five steps will give you a jump start toward that peace of mind.