How to Make Your Finances More Flexible Before the Next Recession
The US economy has been more or less in growth mode since the Great Recession of 2009, but growth has not lasted forever. While no one can say with certainty when the next downturn will hit, they are confident that it will come eventually. And when that happens, you want to be as prepared as possible.
With that in mind, here are a few steps you can take to keep your finances safe.
Know what to do first.
If you have student loans but don’t have a reliable savings account, Liz Weston, a personal finance expert, recommends putting the extra money into your savings rather than paying off your debt at low interest rates.
“Don’t rush to pay off student loans or mortgages, especially if you have higher rate debt or a paltry emergency fund,” she writes. “Your additional principal payments usually do not reduce the required monthly payment, and you cannot get the money back if you need cash in an emergency.”
Your biggest goal should be to increase your savings. If you’ve focused heavily on investing, for example, then it might be time to scale it down and deposit some of the money into your bank account. Remember, you cannot use your retirement accounts to receive cash without penalties and taxes. (Although this is another reason to choose Roth over a traditional IRA, if you can, as you will be able to withdraw contributions.)
“You should be able to leave all your investments in the stock market alone for at least five years, and preferably 10, so that your portfolio has time to recover from the downturns,” writes Weston.
Work on your credit score
“Lenders often become more discerning during a recession,” Weston writes. “They can freeze lines of credit, close credit card accounts and make it difficult to get new loans.”
This is why it is so important to work on improving your credit now if it is lower than you want. Keep your balance low, make payments on time, and work to pay off any high interest debt you may have accumulated.
Here are some resources to improve your score:
- First, find out how your score is determined . The most important factor is that your bill is paid on time each month, as well as how much of the line of credit you are using.
- Then you can use these steps to grow or build it from nothing.
- Remember to check your credit report for any suspicious activity that could ruin your account.
- Finally, beware of these “gimmicks” to increase your score.
She also recommends keeping a backup credit card handy so that you have access to another line of credit if absolutely necessary. Use a replacement card only for small monthly payments to keep them functional, and be sure to pay off your balance every month.