The economy may have moved out of a technical recession, but many people still see their finances affected by adversity. Another consideration is the fact that, even if things start looking up, it is quite possible that another recession strikes. In fact, this is quite likely since the economy moves in cycles. There will always be down times and if you want to shore up your personal finances against a recession, it is likely that you weather it much better. You can't control what goes on in the national economy, but you can control -- for the most part -- your personal economy. Here are five tips for beating a personal recession:
- Reduce your bills: Go through all of your bills and decide what can be cut. Is a rival cable or satellite company offering a hot new deal? Are you paying for features on your phone that you don't use? What about your insurance policies? Can you raise your deductibles to reduce your monthly premiums? It may be that some bills can be cut altogether. Evaluate each of your monthly obligations and see what you can do to reduce costs or eliminate unnecessary bills.
- Pay down debt: Having pressing obligations during a recession is a good way to up your stress level. Instead, work on paying down your debt. You'll free up more money in your monthly budget and you'll have more financial maneuverability when the next recession hits. Plus, right now, interest rates are lower, so more of your payment goes to principal, helping you reduce your debt faster. Take advantage of this situation.
- Cut your spending: This goes hand in hand with reducing your bills. Track your spending and try to reduce it to make more room in your budget. You want to be able to live on 80% of your income, rather than spending it all. This 80% also includes charitable donations and saving/investing. So this means if you save 10% and give 10% to your church or a charity, you should actually only be using 60% of your income for expenses. Look at your spending habits and determine your priorities. In many cases, you will be amazed at how much of your income goes to waste (experts estimate that every household wastes 10% to 15% of their incomes each month). That leaves you a 20% cushion, and gets you used to living with less, so that lifestyle inflation doesn't cause a problem in tough times.
- Invest: This includes savings accounts (look for high yield accounts with free money bonus offers), which are cash investments. But you should also consider stocks, bonds and funds, depending on your risk tolerance. There are a number of online brokers that offer low-cost trades and even automatic investment plans that make this easier. Prepare for your future and help reduce your chances of succumbing to a recession. And, incidentally, a recession is a good time to invest more since you can get bargain prices. Just be careful. I like index funds because they track market performance, and protect you against the risks of stock picking. Just be careful to look for low-fee funds, and avoid major investment mistakes.
- Cultivate alternative income streams: Diversity is important in an investment portfolio, and it is also important when it comes to income. Think of different ways to cultivate income, whether it is investing in dividend paying stocks, creating a web site that offers residual income, doing small freelance jobs on the side or becoming involved with affiliate marketing.
In the end, you are responsible for improving your finances and doing your best to beat a personal recession. But if you plan ahead, and prepare, you can make it through a recession without devastating your finances -- and you should be able to live something of an abundant life.
-- Miranda
Image source: sxc.hu