In March, the International Monetary Fund (IMF) warned of an upcoming recession as a result of the Coronavirus pandemic. The virus has claimed 179,984 lives so far and brought the global economy to a standstill. With workers get laid off and job security being practically nil, it is more important than ever to manage personal finance.
In this article, we will be discussing how you can reduce your financial risks and prepare for a recession.
Create an Emergency Fund
If you are worried about losing your job in the near future, then we suggest you create an emergency fund. An emergency fund is the money you can use for managing your daily expenses if you become unemployed. We suggest you save up enough money to help you manage at least 6-months worth of expenses. You can evaluate your overall savings and direct at least 50 to 60 percent of it the emergency fund.
You can also add more money to this fund on a weekly basis so that it grows in value. Remember, you may find it difficult in the beginning, but having an emergency fund in place reduces your reliance on credit when things get tough. In the long run, borrowing too much credit will hurt your savings because you will have to pay back the money you borrowed with interest.
Review Your Monthly Budget
Budgeting is one of the best ways to manage personal finance. It helps you control your monthly expenditures while still making room for occasional luxuries. If you already have a monthly budget in place, then we suggest you review it. Given how we must prepare for a recession, it’s important to see if you can cut down your current expenses further. Avoid making unnecessary expenditures such as ordering take-out and shopping online for things you don’t really need.
You can also review your automated payments. For instance, if you have subscribed to multiple streaming services then you cancel the ones that you don’t use as often. This money can be redirected toward your savings instead.
Establish Multiple Sources of Income
Things are highly unpredictable at the moment. Instead of relying on a single source of income, we suggest you look for other ways that can help you earn money. Diversifying your income will significantly reduce the financial risks you will be exposed to if you end up losing your job.
There are several things you can do to earn more money. For instance, you can rent out a room in your house. You can also put up space in your garage on rent. If you have a skill that can be monetized, then we strongly suggest you use it to start earning more money. For instance, if you have good writing skills then you can work as a freelance writer. If you are crafty and love making things, then you can open up a shop on websites like Etsy and sell your creations.
The Bottom Line
As the saying goes, tough times don’t last, but tough people do. We hope that the above safety measures will help you manage personal finance and prepare for a recession. If worst comes to worst, they can help you to get through the hard times until the economy stabilizes again.