If faced with an extended job loss, would you be ready?
Are you one of the 49% of working adults that live paycheck to paycheck with no savings? According to a recent GOBankingRates survey, nearly half of Americans don’t have a financial safety net and would be at high risk if a recession hit. Sadly, recessions happen about once every 58 months. So looking back to the “Great Recession” of 2007-2009, we’re definitely overdue – which could make life pretty scary if you’re part of that 49%. Here are some ways you can protect yourself and your family from a downturn in the economy.
Create a budget and start tracking your expenses
Do you know where your money goes each month? You might be surprised. My husband and I have good careers, but when we’re not paying attention, we find we spend WAY more than we should, and we end up not making progress on our financial goals. Budgeting isn’t scary, and it doesn’t have to take a lot of time. Many banks and credit unions provide budgeting features in their online services, and there are also free and cheap budgeting websites. You can also start with paper and pencil, or a simple spreadsheet. Just start by listing your paychecks for the month and totaling up your monthly income. Then list out all your fixed expenses, starting with your rent or mortgage, and continuing into all your monthly payments on utilities, debt, food, etc.
Set up an emergency fund
Even if it’s only $1,000 start, you need to set something aside from emergencies! When you’re living paycheck to paycheck, watching every penny, what happens when the hot water heater fails or you need car repairs? If you don’t have anything set aside, you’ll likely reach for the nearest credit card – and racking up costly debt. If you don’t have credit cards, or they’re maxed out, then what?
If you follow Dave Ramsey’s Baby Steps like we do, your step one goal should be $1,000 in a starter emergency fund until you’re out of debt. Once you’re debt free, your savings goal is 3-6 months of expenses that you can tap into in case of a job loss or other emergency. (Read my post about saving your $1,000 emergency fund if you need ideas for how to scrape this together.) When our water heater started leaking a year ago, we didn’t have enough set aside to pay the plumber to replace it for us (more than $1,000), but we had enough saved to buy a new one and do the work ourselves. (Thanks, YouTube!)
Reduce or eliminate debt
Do you have a little or a lot of debt? How many payments are you making a month, and what percentage of your income is going to those payments? If you face a reduction in your household income, the last thing you want to worry about is making debt payments. First things first, do what you can to get rid of as much debt as you can, as fast as you can.
There are multiple ways you can tackle your debt, but the most talked-about methods are the snowball and the avalanche/ladder method. Each have their pros and cons depending on how your personality and how you stay motivated, but both will get you to the same ultimate goal. I’ve done a deep dive on the snowball and avalanche debt payoff methods to compare the two in another post if you’re interested. But no matter which one you go with, the most important thing is to reduce the debt in your debt-to-income ratio. The less you owe, and the fewer monthly payments you have to worry about each month, the less exposed (and stressed) you are – and more of your money stays in your pockets.
Polish your resume
I’ve seen lots of key people get laid off in my time in corporate America. Like Thanos with his gauntlet, sometimes it’s just an indiscriminate numbers game when a company needs to make cuts. While you’re employed, do whatever you need to make sure you’re prepared to hit the ground running should the worst happen at work. Are there any skills you need for your next career step? Take a class now, or get involved with a project that will give you the experience you’ll need. Do you need current samples of your creative works in your portfolio? Is your resume up to date?
Adjust your investments
Are you focused on the “growth” spectrum for your retirement funds? Talk to your advisor or make some adjustments if you’ve got a self-serve plan at work to be a little more balanced. That doesn’t mean you need to go 100% conservative, but just make sure you’re not too heavily focused on one industry or another, and that you’re balanced. If one industry gets hit hard, you’ll want to have your investments spread out to mitigate your risk.
Start a side hustle
As long as we’re talking about diversification, are you 100% reliant on a single source of income? For most people, they rely exclusively on their “day jobs.” But lots of people are finding other ways to supplement their incomes with side hustles. Drive for Lyft or Uber, deliver pizza a few nights a week, or work at an espresso stand on weekend mornings. There are also many ways to make some extra money without leaving the house – like using your graphic design skills or editing talents on some side jobs.
Even if we’re overdue for a recession in terms of the averages, hopefully it won’t be as bad as the Great Recession. But since they do happen, it’s best to do what you can to prepare so you’re in a better position to ride it through. Don’t spend your days worrying – just make a few adjustments now and you’ll be happy you did later!