It’s no secret that recessions and dips in economic activity come and go in waves. With headlines increasingly warning of a pending economic slowdown, there are several indicators which point in that direction.
Tighter monetary policy, a meager increase in February payrolls, the softening of stock market performance, and President Trump’s ongoing trade war with China is all concerning.
If the sound of a recession makes your stomach lurch, there’s a good chance you’re not financially prepared if it were to happen soon.
The government shutdown that began in December 2018 and dragged on through January 2019 clearly highlighted the negative impact and incredible hardship that most Americans would face if they missed a few paychecks.
So if you don’t feel ready for the next recession, now is the time to take action.
The steps to sound personal finance decisions are much simpler than you realize. The hard part is actually executing your plan and sticking with it, especially when there are so many distractions in our everyday lives.
To begin, you need to know what your financial goals are and why they are important.
The key here is to write them down and re-evaluate them periodically as you solidify your financial footing. If you have a spouse, you’ll want to go through this exercise together.
Depending on your work situation, it might make sense to polish your résumé just in case you need it.
For some families, their goals might include paying down credit card debt so they no longer have it looming over them, while for others it may be increasing their 401(k) contributions.
You’ll decide what makes the most sense for you and your loved ones.
Focus On Financial Literacy First
Once you know the specific targets you want to reach, you’ll need to become financially literate. Know where your money is going. Those details, by the way, might surprise you.
Thankfully, the internet has more than enough information to get you started.
But if you feel stuck and aren’t sure where to start, you can check out sites like The Finance Twins, which are full of free beginner personal finance materials and tools.
You’ll also want to start thinking about the things that are most important to you.
Defining your wants vs your needs during the good times is a lot less painful and emotional than having to cut things out when you are hurting for money.
Maybe you’ll even realize that you don’t need a huge house in order to be comfortable.
Understand The Difference Between Assets And Liabilities
All purchases are not created equal. The sooner that you understand that, the better.
If you’re focused on building wealth and securing your financial future, you’ll want to maximize assets that hold and potentially grow in value, while limiting liabilities or financial obligations.
One common fallacy you’ll want to be aware of is that purchasing a vehicle is a smart financial decision since it is an asset.
While technically true that your car is an asset from an accounting standpoint, your auto is a depreciating asset and quickly loses its value. Focus instead on investments and savings as true appreciating assets.
If you don’t have a high yield savings account, now is the time to open one.
You’ll want your money working for you.
Your Money Is Important, So You Need To Treat It That Way
You would never start a project or a cross-country road trip without a plan. Yet, so many people manage their money by crossing their fingers and hoping for the best.
You’ll want to develop a plan to save, budget and invest your money.
Focus on your savings rate or the amount of money you are able to save from every paycheck. A rough guideline that you’ll want to aim for is to invest 15% of your income for the future.
A Traditional or Roth IRA is a good place to start if you are already taking advantage of a workplace retirement plan like a 401(k) or a 403(b).
Remember, getting your spending in check isn’t an exercise in how much pain you can tolerate pinching a few pennies. It’s about designing a life and standard of living that is sustainable and still provides you with the same amount of happiness and pleasure while allowing you to save and invest for your future.
One good place to focus on is repeat purchases that you make frequently like groceries.
You’d be surprised, but most people don’t have a plan when they go to the grocery store. They just see the empty shelves at home and then get in their car and roam the aisles of the store absentmindedly throwing things in the cart.
But even if that doesn’t sound like you, there’s probably a few things you don’t know about how to save money on your grocery bill!
There are also sites you probably don’t use that could save you a lot of money.
For example, if you wear contact lenses, then you need to use Contacts Compare to save money and find the lowest prices for contact lenses!
Ask For Advice If You Feel Stuck
If you’ve gone a few weeks with a toothache that won’t go away, chances are that you’ll eventually find yourself staring at a bright light at the dentist’s office. However, when your finances are hurting, you probably aren’t running to a financial advisor or financial planner for help.
It’s true that you might not get the same immediate gratification from visiting a financial planner because it takes time and effort to notice a difference in your financial life, but that doesn’t make it any less important. After all, you’ll be glad that you’ll have the money to afford a visit to the dentist if you need one.
Not all financial advisors are created equal so take the time to find someone you love and trust. You’ll be glad you took the time to shop around and didn’t go with the first person you met with unless they are the right fit.
You might be afraid of the thought of having to pay a fee for financial advice, but it’s like hiring a therapist for your money. It can be a worthwhile investment if you find the right partnership!
Leverage Technology To Stay Financially Focused
There are countless apps and websites related to tracking your spending, managing your money, or setting up a budget. Take advantage of your favorite ones to stay on track with your goals.
There are even Instagram accounts dedicated to inspiring positive financial decisions. An extra five minutes every day looking at your financial situation instead of looking at pictures of cats on your newsfeed will go a long way.
Similarly, research has shown that small nudges can make a large difference in influencing your behavior, so it will help you if you go on this journey with a couple of friends.
Something as simple as a friend texting you in the morning asking about your side hustle might be all you need to actually go out and earn some extra money.
Being successful with your money isn’t as complicated as you’d think. It just takes a lot of determination to not lose sight of your goals.
Develop An Investor Mindset
If your goal is to have financial freedom, then you need to start acting like it and have an investor-like mindset.
You need to approach your everyday financial decisions with your goals in mind. Start by paying your future self first as soon as you get your paycheck. Don’t just save whatever is left over.
Your savings rate will tell you how you are doing. If you aren’t earning enough money to reach your goals, you need to find ways to make more money. If you’ve gone a few years at work without a raise, it’s time to ask for one or to start looking for alternative jobs. Especially if you don’t LOVE what you are doing.
The fact is that the cost of living has increased faster than wages have over the past few decades, which means it’s harder than ever to live a comfortable life. But it’s still possible. You just have to prioritize it.
It’s only a matter of time before the next recession hits, but you’ll be glad you made the decision to set a solid financial foundation for your family.
The image at the head of the article was acquired via Getty Images.