How to recession-proof your life as economy sags
NEW YORK — Prices for gas, food and rent are soaring. The Federal Reserve has raised interest rates to the highest level since 2018. The U.S. economy has shrunk for two straight quarters.
Economists are divided over whether a recession is looming. What’s clear is that economic uncertainty isn’t going away anytime soon. But there are steps you can take now to be ready for whatever is ahead.
Yiming Ma, an assistant professor at Columbia University, says it’s not a question of if but when a recession will happen. People should prepare but not panic, she said.
“Historically the economy has always been going up and down,” said Ma. “It’s something that just happens, it’s a bit like catching a cold.”
But, she notes, some people’s immune systems are better able to recover than others. It’s the same with finances. If you think a recession could destabilize yours, here are some things you can do to prepare.
Know your expenses and make a budget
Knowing how much you spend every month is key. Ma recommends sitting down and writing how much you spend day-today. This will help you see what’s coming in, what’s going out and which unnecessary expenses you might be able to cut.
“By understanding what money you are getting and what you are spending, you may be able to make changes to help you through tough times,” advises the Federal Deposit Insurance Corporation’s Money
Smart, a financial education program.
Budgets often reveal expenses that can be eliminated entirely or impulsive spending that can be avoided with planning.
For guidance creating a budget, free courses such as “Creating a budget (and sticking to it) ” by CT Dollars and Sense, a partnership of Connecticut state agencies, and Nerd Wallet’s Budget Calculator can be good places to start.
Save as you can
The more nonessential expenses you can cut, the more you can save.
It’s not possible for everyone, but Gene Natali, cofounder of Troutwood, an app that helps people create financial plans, says it’s ideal to budget to save enough to cover basic necessities for three to six months.
Programs such as America Saves, a nonprofit campaign by the Consumer Federation of America, can help create a roadmap.
If you do have a savings account, it’s important to check whether your bank gives you a good interest rate and shop around if it doesn’t, Ma said.
Her advice is to keep an eye on the monthly fees or service charges that might eat into your savings. But don’t limit your options. Online banks sometimes offer better rates than traditional ones.
Consolidate your loans, and don’t take any more
As interest rates rise, experts recommend that you consolidate your loans to have just one fixed-rate loan and, if you can, pay down as much of your debt as possible.
“Job security tends to be worse when a recession comes, it’s not a great time to accumulate debt,” said Ma.
But paying off your existing debt is easier said than done. The Federal Trade Commission’s Consumer Advice guide for Getting Out of Debt can help you make a plan.
With interest rates high, it’s also not a great time to take out new loans for big expenses like cars.
Visit second-hand stores and yard sales
Allen Galeon, an inhome caregiver in California, has been affected for months by the rising prices of household staples like groceries, paper towels and gas .
Since the start of the pandemic, when Galeon cut down from caring for multiple families to a single client to reduce his health risks, his household has dealt with financial instability.
One choice he’s made is to buy items like clothes or electronics second-hand whenever possible, whether from Goodwill, pawn shops or Craigslist. And Craigslist allows you to search by area, to cut down on driving — which means less gas and inconvenience.
Negotiate your monthly bills for lower rates
Since the pandemic, many companies have updated their relief policies and have become more flexible with users, according to Kia McCallisterYoung, director of America Saves.
Calling providers of monthly services to negotiate bills — whether it’s utilities, phone service, cable, internet, or auto insurance — can lead to meaningful savings, said McCallister-Young. Individuals can ask for the best rate, any available discounts, rebates or coupons that can lead to a lowered monthly fee. If a provider is competitive with other companies, there’s an even better chance of getting a discount, she added.
Check out federal programs such as the Low Income Home Energy Assistance Program, which helps cover bills, and Lifeline, which can assist with phone bills.
Switch up your groceries
Grocery shopping with a meal plan, buying generic rather than brand-name or purchasing in bulk are recommendations from the Consumer Federation of America.
“A lot of stores have price matching, so if you show them that a competitor is selling the same product at a lower rate, they’ll match that,” said McCallister-Young. “You also want to be looking at the stores that are closest to you, so you’re not spending the extra money you’d save on gas.”
An alternative way to save money on groceries is to check out food-sharing apps such as Olio, which connects people around their community to share extra grocery items, and Too Good to Go, where customers can buy businesses’ surplus food at a discount.
Look at government assistance programs
Even with these saving and spending practices, a month’s wages aren’t always enough to cover important expenses. If this is your situation, programs around the country are available to assist you.
“Sometimes there just isn’t enough ‘end of the month’ at the end of the month,” said Michael Best, an attorney at the National Consumer Law Center who works on financial services issues.
To make use of these resources, check if you qualify for the Emergency Rental Assistance Program, Supplemental Nutrition Assistance Program, Farmers Market Nutrition Program, or the Homeowner Assistance Fund. All of these are federal programs coordinated by state governments.
Find community assistance
If you are experiencing food or housing insecurity, look for nonprofit or community organizations around you. From housing support and food banks to utility assistance, non-profit organizations around the country can help. National organizations such as Feeding America host food banks in all 50 states.