No matter what we want or how hard we wish to ignore the facts, recessions will continue.
Times may be good right now, but don’t get lazy.
Instead of being a victim of the next recession, be prepared.
Think ahead and consider steps can you take to be better positioned for a recession. Here are a few:
- Be using a value-based budget.
- Have an emergency fund.
- Pay off high-interest debt.
- Develop new skills (or update old ones).
A value-based budget isn’t your traditional tracking of income and expenses, it’s a budget based on your priorities – those things that provide joy (aka value) to you.
This takes more than picking a budgeting tool like Mint.com or YNAB and linking all of your accounts.
It’s time to refocus on what’s most important.
Value-based budgeting requires you to reflect on what your highest goals are and to determine your priorities in life. Most likely, somewhere in your everyday living, these have been lost and not reflected in your spending.
Your budget is then created around your priorities, from the ground up. You determine what you want to spend your money on and whether it ultimately helps you reach your overarching life dream.
An emergency fund isn’t just a good idea, it’s a requirement. A sudden medical expense or an unexpected repair can derail your financial dreams. Don’t let yourself be set back just because you’re not willing to save a little money.
What is an emergency fund? It’s a separate savings account, where you keep 3-6 months of living expenses. An emergency fund allows you to ride through the unexpected costs of life, without financial stress.
Emergency funds should only be used for emergencies. Covering your food or rent bill for the month is not an emergency, this should be in your value-based budget. Paying for a surprise surgery or leaking roof is an emergency.
How do you determine if you need 3 or 6 months of expenses in your emergency fund? Your job security, whether you work for yourself, or if you have family to feed all impact how much you should save. The riskier your situation (work for yourself and have a family) the more you should have in your emergency fund.
Paying off high-interest debt while the times are good is vital to your financial survival when a recession hits.
Interest on debt (especially credit cards) is suffocating. You are still paying on past purchases, which may, or may not, be still bringing you joy.
Debt can be a reminder and a chain to poor past financial choices. By removing this monthly payment, you not only free up money to focus on your priorities and life goals, you’re also breaking the emotional linkage to past purchases.
Focus on being as debt free as possible while you’re living large, this will allow you to focus more money on your current dreams.
Paying down your debt allows you more flexibility if times get tough. You may find yourself relying on the credit card again and it would be great to start from scratch, not with a current balance which lowers the available funds.
Personal development should be on your list whether you’re doing great or already in a recession.
Gain new skills and refresh old skills. These are great investments for your money and your future at any point. There’s no better way to grow in your career.
Think ahead and prepare yourself for change. This will allow you to weather financial storms with less stress and more opportunities.
Actively work on a personal development goal. Do you need to join seminars and attend training? Will technical books suffice? Figure out what you need and allocate time and resources for success.
Technology is constantly changing and finding it’s way into all industries. Even a basic curiosity and experimenting with new software and applications will give you a leg-up on others.
Seek knowledge. The last thing you want is to find yourself in a recession, laid off from your job, with outdated skills.
Work toward your life dreams with a value-based budget. Prepare for the unexpected with a fully funded emergency fund. Be debt-free with a cushion, if things get really bad. And stay up-to-date with new skills to grow your career, regardless of the economy.
Recessions happen, but we don’t have to be a victim to them.