5 tips to “recession-proof” your savings

Mother on laptop computer to recession-proof her savings while in kitchen with her son.
October 04, 2022 | Lois Sullivan

When there's talk of a recession on the horizon, many people are concerned they will feel the economic effects of rising prices and soaring inflation. Protecting your savings is a must, especially when the future feels uncertain. If you're wondering how to do that, here are some timely tips to recession-proof your finances.

What is a recession?

When you hear the word “recession,” you might wonder what it means exactly. The definition of a recession is a notable drop in economic activity that affects different industries and areas of a country. If you were alive in the early 2000s, you might recall the recession of 2007-2009, which occurred after losses on subprime mortgages battered the U.S. housing market. This period, known as the Great Recession, had a global effect on the economy.

The COVID-19 pandemic has also had an unprecedented effect on economies across the globe. Strict lockdowns to mitigate the spread of the virus among people resulted in a decline in manufacturing and production, as well as the closure of many businesses. Millions of professionals have left the workforce, creating a labor shortage. Some of these people have changed careers, while others have retired from their jobs altogether. 

These unique situations have combined to create unsteady economic circumstances, and the Federal Reserve has taken steps to curb rising inflation. One of these steps is raising interest rates, which can slow economic growth. Economic slowdowns and rising inflation can impact your savings, especially as prices for necessary goods and services go up.

Tips to protect your savings

Now that you know what a recession might look like, you may feel uneasy about your finances and how to recession-proof your savings to protect your financial future. Follow these tips to recession-proof your savings and be prepared for whatever might come.

Build an emergency fund 

If you don't already have an emergency fund built up, now is the time to make that happen. Financial experts recommend saving enough to cover six to 12 months of living expenses and keeping the funds in an accessible account. If saving thousands of dollars feels daunting, work toward smaller goals. Try to save $500, then $1,000, and work your way up to saving more money.

If you already have an emergency fund, you can always add to it. Rising interest rates can benefit a high-yield savings account, and the more money you have in your account, the more you'll earn in interest.

Reduce high-interest debt

High-interest debt can wreak havoc on your finances, especially during a recession. Take steps now to reduce the amount of credit card debt and other high-interest debt you carry. Consolidating your debt to an account with a lower interest rate might help you improve your financial situation. You can also try to pay extra money toward the outstanding debt to reduce the total amount and lessen how much you pay in interest.

Consider a side income source

When you're struggling to make ends meet, one option to consider is adding another source of income. Multiple income streams, also referred to as side jobs or side hustles, can help support you when things cost more and prevent you from incurring more debt. In today's world, you can drive your vehicle to transport passengers, deliver food and groceries, and get paid to promote products to your followers on social media. Even selling some of your valuable possessions could help boost your savings account and help you get through tough times.

Make and stick to a budget

Saving money requires self-control and discipline. But if you're not sure where your money goes every month, it's difficult to set aside funds to prepare for the future. Before a recession, it's essential to make and stick to a household budget. Whether you're the only member of your household or supporting multiple family members, having a budget is necessary for any situation.

Start by outlining all the essential expenses, such as housing, utilities, transportation and groceries. Any debt you're paying off would also fall under the essentials category. After you add up the totals of these categories, outline the other items that you're currently spending money on but could be trimmed, such as entertainment and personal care. Before you spend any money, assess your budget and make sure you can afford to make the purchase, especially if it falls under one of the nonessential categories.

Sticking to a budget requires all household members to agree and make an effort to avoid overspending. Buying items that appeal to you at the moment is tempting, so you might want to implement a “cool-off period.” This cool-off period involves waiting an agreed-upon amount of time before buying something and deciding whether you still want it. Some people cool off for 24 hours, while others wait up to 30 days.

Invest in yourself

Investing in your professional development and skills is smart before a recession hits. Seeking out advanced training and educational opportunities can help increase your skill set, which makes you a more appealing candidate for open positions. If the job market does trend downward as the economy shifts, finding a job may become more competitive. Finding ways to stand out and make yourself more valuable to a potential employer can be helpful.

If you're currently in a role that offers training and development opportunities, take advantage of them as much as possible. Even if you don't have options available at work, you can seek out courses and training at trade schools and junior colleges that won't break the budget. In some roles, certifications can help candidates stand out when applying for jobs. Consider getting certified to demonstrate your knowledge and expertise in your industry.

A recession can be challenging, but you can protect yourself with the right mindset and financial plans. Alliant  can serve as your financial resource, offering high-yield checking accounts and competitive loan options for people in all situations. Contact us.

Read more about saving and budgeting:

Should you refinance your car loan?

How to adjust your budget for inflation

How to pay for tax bills you weren't expecting  

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