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- I’m a financial planner, and I have four suggestions to get you through your financial recession.
- Start by increasing your income: Ask for a 7-10% raise, or find a side job to bring in extra money.
- Also: Put your money in a high-yielding savings account – you can earn around 3% interest now.
“How do we know we’re in a recession? Do they, like, announce it?” My friend and I laughed at his question.
If you have read the news, it seems that we have heading into recession for several months now and we have all been waiting for the official news with baited breath.
The official definition of a recession is a period of economic decline where GDP (gross domestic product, or everything we make and sell in a certain period of time) has decreased for two consecutive quarters. That means a recession cannot be officially declared until six months after it begins.
I started in financial services in March 2008 when I was 22, a few weeks after the big investment bank, Bear Stearns went bankrupt. By March 2009, the stock market had officially lost 40% of its value.
The The great recession Technically it lasted from December 2007 to June 2009 and since then, the stock market only went up, along with the GDP.
We just experienced the longest bull market in economic history, and the stock market increased in value for 11 straight years. Most bull markets last an average of five to seven years. This means that for the adult life of my generation, we will only see the stock market grow.
Despite more than a decade of stock market prosperity, the negative effects of the Great Recession linger, especially for communities of color. A A report from the ACLU in 2015 found that by 2031The average wealth of Black families’ would be almost $100,000 lower if the Great Recession did not occur.
The coming recession can feel overwhelming and as if your finances are out of control. While there’s no way to predict how a recession will affect your finances, there are some things we can control. Below are four ideas to start recession-proofing your finances today.
1. Find ways to increase your income
Diversifying your income stream or increasing the income you already have is the first place to start a strategy.
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 in your job.
If not, now is the time to think add an additional income streamwhether it’s getting a second job temporarily, finally putting a product on Etsy, or monetizing a skill into a service.
2. Consolidate your debt into a fixed interest loan
If one of your debts has a variable interest rate, consider moving that debt to a loan with a fixed interest rate so your interest rate doesn’t change.
For example, if you have credit card debt, the interest rate is likely to increase. Consider it take a personal loan pay off the credit card if the loan interest rate is fixed and equal or lower than the credit card debt.
Make sure you can still afford the monthly payments – personal loans require you to pay principal and interest, which is ultimately a good thing, but it can increase your monthly bill.
3. Decide which ‘want’ is non-negotiable, even in difficult times
I’ve had clients who lost their jobs and claim they spent more money that month than they did while on the job. This is not an anomaly, it is a natural human reaction to feeling like everything is screwed up, so why not get your lobster and steak.
The purchase that you say is frivolous is the most likely purchase that replenishes your energy and makes you feel like yourself.
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 a pair of shoes here and there, you can really enjoy it and let it take over your life.
4. Move your money into a high-yield savings account
When we see interest rates rise on mortgages, car loans, and credit cards, we see them too rising interest rates on high-yield savings accounts, 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 you move your money into high-yielding savings, consider also increasing your savings amount by 10%. For example, if you save $100 per month, save $110 per month. If you don’t save regularly, choose an amount that will be automatically transferred to your savings.
Go through it together
There’s understandably a lot of fear and uncertainty right now about 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 because some people will get through this recession easier than others.
If you can, add a line item to the money or time budget to participate in mutual aid or give directly to a friend in need. If you’re struggling, find ways to ask for help from your friends and the larger community.
While we can’t stop the recession alone, we can make sure we can all get through it together.