FinancialMental

Recession-Proof Yourself with Emergency Funds

The world is seeing inflation at an all-time high. Interest rates are rising incessantly, oil prices are pushing up gas prices, there is a war abroad, and it feels like the stock market is on the brink of a collapse. For all these reasons, it is natural to be at your wits end or feel anxious and stressed out. The good thing is recessions do not last forever. The only worst thing you could do is make impulsive and reactive decisions. This article at Bank Rate by Sarah Foster shares nine ways you can secure finances amidst a recession.

Recession a Looming Threat

The United States economy may be on the verge of triggering the next recession. Economists estimate the likelihood of a recession in the next 12 to 18 months at 52 percent in Bankrate’s Second-Quarter Economic Indicator survey. However, it is important to start planning for a downturn in the economy before it happens.

Tips to Build Emergency Fund

Here are some suggestions for strengthening your finances and boosting your financial resiliency so you may not only survive but also thrive during a recession:

  • Evaluate your monthly budget. Identify your total income and expenditure and the areas you spend the most money.
  • Design a monthly expenditure plan considering all inevitable expenses and reduce nonessential purchases to avoid overspending. Financial experts recommend not exceeding 30% of your net salary on discretionary spending.
  • List all your debts, identify debts that are charging you high interest and prioritize to pay them first.
  • Transfer all your freed-up cash to your emergency fund. You should aim to cover at least six months of expenses with your emergency fund.
  • Do not transfer your emergency fund to any investment that requires a lock-in period or has withdrawal limitations. Ensure your emergency fund is accessible easily.
  • If you have a student loan or a loan from a federal borrower, you can negotiate a temporary payment plan in case of job loss or other disruptions. This allows you to focus on building your emergency fund instead of paying off your low interest debts and later borrowing money at a higher rate from financial institutions.

Additionally, the author shares three ways to build your emergency fund to sail through the recession period.

To read the original article, click on https://www.bankrate.com/banking/federal-reserve/how-to-prepare-for-a-recession/

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