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Building savings during a recession
Economic forecasts indicate a recession could be looming. While it’s difficult to pinpoint exactly when this recession might begin, data suggests 2023 into early 2024 is likely. It’s important for regular folks to start taking steps that can protect their financial well-being now.
First of all, what is a recession? According to Forbes, “A recession is a significant decline in economic activity that lasts for months or even years. Experts declare a recession when a nation’s economy experiences negative gross domestic product (GDP), rising levels of unemployment, falling retail sales, and contracting measures of income and manufacturing for an extended period of time.”* For the average person, a recession can impact job security, wages could be frozen or decreased by employers, benefits may be cut, spending can increase due to inflation and credit products may be harder to obtain.
While there’s no way of knowing how severe a recession will be or how long it will last, you can take steps to prepare. Here are some tips to build a financial cushion:
• Make saving money each pay period a habit. Allocate a portion of your earnings to savings every time you get paid.
• Cut unnecessary spending. You know the drill…eat out less, buy clothing secondhand, skip the high-priced coffee drinks, evaluate and cut back on streaming services, etc. The little things can add up to big savings.
• Downsize. Sell things you no longer want or use, consider making changes to cut down on living expenses, and trade in a gas guzzler for a fuel-efficient vehicle (if you can do so without a large car payment).
• Keep your savings separate. Don’t keep saved funds in your checking account. Open an interest-bearing savings account that you can easily transfer money into and out of if the need arises.
• Pay off debt. If you can pay down or pay off variable-rate or revolving debt like credit cards, do so. You can consider a low-rate debt consolidation loan with a shorter term to help you pay off outstanding balances and save on interest charges.
• Avoid high-rate debt. Credit card interest rates are at historic highs right now. Try to avoid charging purchases and keep your cards at a zero balance to be ready for emergencies only.
Building your savings now can help you be better prepared — even if a recession can be avoided or is brief. If you need a loan to cover expenses or consolidate debt, we are here to customize a solution for you. Chat with a loan advisor today.
* Source: www.forbes.com/advisor/investing/what-is-a-recession/