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10 Steps to Prepare for a Recession; From Cleaning Out Clutter to Paying Down Debt, Advance Planning is Critical to Weathering an Economic Downturn
San Mateo, Calif., Nov. 1, 2022 — Global impacts including inflation, large interest rate hikes, the Russian invasion of Ukraine and the effects of the Federal Reserve’s quantitative tightening policy are just a few key indicators of a looming recession. For many, recessions can mean reduced income, business slowdowns and a general tightening of the economy.
“We know that many Americans are currently living paycheck to paycheck,” said Andrew Housser, Co-Founder and Co-CEO of Achieve. “While some are able to stretch finances to make ends meet, for others a recession can make it challenging to pay for basic necessities. With careful planning, prioritization and a budget, consumers can more easily weather more difficult economic times and keep their financial progress moving forward.”
Achieve, the leader in digital personal finance, has established 10 steps to help consumers establish the financial foundation to better prepare for a recession.
Realize you have little to no control over the economy. You can’t control prices or price fluctuations, or whether a recession happens. Instead, work on what you can control: providing yourself some buffers so when things happen, you’ll be better prepared.
Get your priorities straight. Pay your mortgage or rent first. Never risk your home. If you do encounter trouble making your monthly housing payments, be proactive and contact your mortgage servicer or landlord to discuss what options may be available to receive assistance getting back on track.
Organize and declutter your storage areas, closets, garage, attic. You’ll get a much better inventory of what you really have so you don’t spend on something unnecessarily.
Stick to your budget. Especially in financially stressful times, many people say “it’s hard to budget.” While budgets should ideally be based around short-term and long-term goals, right now, it can make sense to focus on the shorter term, and determine where you/your family’s own vulnerabilities may be. Addressing these may help ease the pressure on paying for day-to-day expenses.
For instance, if you have an older car prone to mechanical issues, it could be smart to prioritize preemptive maintenance needs, so you don’t end up needing to find/buy a car if things get really tight. If you anticipate needing a medical or dental procedure, it might make better sense to schedule them now, if your job’s insurance would cover a substantial portion of it.
Review your budget frequently. Agreeing to do it on a scheduled basis can eliminate any spousal/family resistance; keep it short and direct.
Track spending. Budgeting can sometimes feel like you’re groping in the dark, especially if you’ve not done it before or the environment you’re in (i.e., the economy) is changing rapidly. Hold on to all receipts for a few weeks and keep a detailed spending log. Many people are surprised to see how much they spend each day, and on what. By doing this, you’ll know what your expenses really are, and you’ll spot areas where you CAN cut back or better prioritize in your budget.
Prioritize savings. From the last recession and the pandemic, consumers learned (or should have learned) that the unexpected does come up. It could be losing a job, a large medical bill, an appliance going out. In recessionary times, income stability could be threatened, from a complete job loss to reduced hours or pay. The best thing you can do now is to shore up your savings.
In the budget, include savings as a line item in “Expenses.” Set your monthly savings amount and make it a "bill,” or expense, to pay just as you pay other bills. Many experts recommend saving 10% of all income received, and having enough in savings to cover six to nine months’ worth of basic living expenses (that’s different from salary). Do what you can; the key is to start with what it would take to cover that needed appliance or pay a medical bill. Then build gradually.
Generate additional income for savings. Easier said than done, but the job market is still strong. A few ideas beyond well-paying part-time retail jobs:
Tutor or teach a language, online or off.
Help people with computer updates and maintenance, virus removal or cleaning up a hard drive, if you have computer skills.
Pet-setting, dog-walking and yard work are always in demand.
Gig work ranges from well-known ride hailing and delivery apps like Uber and DoorDash to lesser-known freelance apps like Fiverr and Upwork. Find an app that offers services that best meets your skills and available resources. Just don’t forget to set aside money earned from these jobs for taxes.
Don’t skimp on retirement savings if at all possible while you’re working to pay down credit card debt. If you work for an employer with a matching retirement savings program, not participating is like giving money away.
Make a plan to pay off credit card debt. Paying off credit card debt at typical interest rates effectively makes an investment that returns 13% to 20% per year. Think about it: If your credit card charges 20% interest, and you pay off the balance, you are guaranteed to save yourself from losing 20% — which is, in effect, making a 20% return.
Another example: Think about what happens if you have credit card debt of $3,000 with an 18% interest rate. A minimum payment of 3% would be $90 per month. Paying only the minimum (which will decrease over time) will cost $2,698.44 in interest, and take nearly 16 years to pay off. That means you will be paying almost twice as much for what you bought in the first place — and lose the opportunity to invest that money and earn something on it.
For more information about personal loans, home equity loans and debt resolution, visit: achieve.com
Achieve is the leader in digital personal finance. Our solutions help everyday people get on, and stay on, the path to a better financial future, with innovative technology and personalized support. By leveraging proprietary data and analytics, our solutions are tailored for each step of a consumer's financial journey and include personal loans, home loans, help with debt and financial tools and education. Achieve is headquartered in San Mateo, California and has more than 2,700 dedicated employees across the country with hubs in California, Arizona, Texas and has regularly been recognized as a Best Place to Work.
Achieve and its affiliates are subsidiaries of Freedom Financial Network Funding, LLC, including Bills.com, LLC d/b/a Achieve.com (NMLS ID #138464) Equal Housing Lender; Freedom Financial Asset Management, LLC (NMLS ID #227977); Freedom Resolution (NMLS ID 1248929); and Lendage, LLC d/b/a Achieve Loans (NMLS ID #1810501), Equal Housing Lender.
VP, Corporate Communications
Director, Corporate Communications