(Newswire.net — July 10, 2020) —

Recessions create uncertainty for everyone. Pay cuts, furloughs, and layoffs are common occurrences. 

You may not be able to predict the future, but you can plan for it. Here are seven ways to recession-proof your finances: 

1. Take a hard line against unnecessary spending

Now more than ever, it’s important to find ways to cut back on your spending. You need to learn to live within your means, even if that means cutting back on things like entertainment and eating out. 

Without a budget, it’s difficult to know just how much you’re spending on needs and wants. A good rule of thumb is to spend no more than 30% of your after-tax income on nonessential purchases. Necessities should represent 50% of your post-tax pay, while the remaining 20% should be spent on paying down debt or socked away as savings. 

Are you eating out most nights? Do you pay for Netflix, Hulu, and Amazon Prime? Make an online debit card your default mode of payment so you can track your monthly spending. Choose one without hidden fees so you aren’t blindsided at the end of the month. 

2. Boost your emergency savings

If there’s one thing this pandemic has taught us, it’s the value of being financially prepared in case of an emergency. 

As appealing as the debt-free life is, having savings to fall back on is crucial at a time like this. If you lose your job and don’t have extra cash, you’ll be forced to use credit cards. In other words, you could wind up accumulating even more debt.

Even if it means making only the minimum monthly payment on your debts, focus on saving six months’ worth of living expenses. After that, you can go back to chipping away on what you owe.

3. Prioritize your debts

All types of debt are not created equal. Some come with significantly higher interest rates than others. Credit card debt, payday loans, and some private student loans have interest rates of 7.5% or more.

Prioritizing your debt by interest rates, sometimes known as the “debt avalanche method,” will save you money in the long run. Low-interest debts grow less quickly than high-interest ones, and you don’t want to be caught with a lot of high-interest debts if you lose your job. 

However, if your highest interest rate is also your costliest, you might want to try a different solution known as the “snowball” method. Instead of focusing on the interest rate, pay your debts from the lowest to highest balance. 

Keep in mind, the “snowball method” won’t save you as much money. But it’ll still help you improve your finances over time. 

4. Reassess your housing situation

Are you currently renting? You might want to consider getting a roommate or, if your lease is up, moving somewhere less expensive. 

Housing represents the single largest share of many households’ expenses. Not only is it the area where you stand to save the most, but you also don’t want to be stuck in a high-rent space if you wind up losing your job. 

If you’re a homeowner, the same advice applies. Find ways to reduce your expenses so you’re prepared for the worst-case scenario. If you’re planning on selling your home in the near future, find low-hanging-fruit ways to improve your home value, such as putting a fresh coat of paint on the walls. 

Homeowners with mortgages have one additional tactic available to them: refinancing. Recessions usually cause mortgage rates to fall, which gives homeowners more options to refinance. Keep an eye on rates so you know whether you could scoop up a better one. 

5. Find new income streams

This isn’t the time to put all your eggs in one basket. If one income source dwindles, you’ll need alternative streams to keep you afloat. 

This doesn’t necessarily mean going out and getting another job. Are you a good cook? Sell baked goods to your friends and family. If you have an extra room, you could rent it out. Driving for Uber or Lyft could work if you have a newer vehicle. 

The point is that there’s money out there if you’re willing to hustle for it. Get creative, and don’t wait until a job loss to figure out your backup. 

6. Keep investing in your retirement

You might be tempted to stop contributing to your 401(k) during a recession. Frankly, that’s the last thing you want to do, especially if you plan on retiring in the next couple of years. Contributions have room to grow when they’re invested while the market is down. 

Recessions are scary, but they don’t last forever. Instead of paring back your contributions, find out where the money in your 401(k) is being invested. Move money within your account into lower-risk investments. Hedge against inflation by converting some cash into precious metals.

7. Climb higher in your career

One of the best things you can do before a recession hits is to up your professional game. Review your résumé, apply for that promotion, strengthen your skills, and market yourself like crazy.

Think, too, about your relationship with your current boss. Do your best to keep it in good standing. That way, if you are laid off, you’re more likely to be recommended to a future employer. Even if you don’t lose your job, performing better at work is never a bad thing. 

Keep your chin up, give your finances a fresh look, and you’ll get through this recession with minimal damage. If you take the initiative to reduce your spending and bolster your income, you might just come out of it even stronger.