Key Takeaways:
- Conducting an audit of your income and expenses helps identify areas where you can make changes to prevent financial losses and ensure your money is allocated appropriately.
- Creating a comprehensive financial plan and stress-testing it can provide insight into potential economic scenarios and help you prepare for emergencies and protect your current assets while pursuing long-term goals.
- Cutting expenses is a practical way to save money, and having a general understanding of your income and spending habits is crucial when developing or adjusting a budget to adapt to changing economic conditions.
he economy is changing, and that means you need to change too.
It's time to recession-proof your life. Here are some tips for getting started:
Consider completing an audit of your income and expenses.
The first step is to do an audit of your income and expenses.
By tracking your income and expenses, you can figure out where you hemorrhage money on a regular basis and make changes accordingly so that they don’t occur anymore. And by tracking both sides of the equation, you can ensure that you have enough money coming in (an issue many people have) as well as making sure it goes where it should go (another common problem).
It’s also worth noting that if there are problems with either side—that is, if there are massive holes in either your income or spending—you need to address them sooner rather than later. If things keep going the way they are now, these problems will only become more severe over time!
Learn more: How to Budget and Save Money in 5 Easy Steps
Get a financial plan or stress-test the plan you have.
Building a financial plan and adjusting it as needed along the way is one way to help ensure your future security.
During the planning process, you can test how various market and economic scenarios impact your financial well-being—for example, calculating how much money you may need to save if some factors change (like a recession).
"The thing I worry about are the big shocks to the system—like a recession and being laid off. You want to try to ensure you have enough liquidity to get through those periods,"
‍says David Peterson, head of wealth planning at Fidelity. ‍
"With a plan in place, you can play around with estimates. What if I get laid off and am out of work for 6 months? Where is money going to come from to cover essential expenses? And how might it impact my retirement plan? A plan can be modeled and estimate what 6 months with no income means for you” (Source: Fidelity).
It can be a balancing act.
It can be a balancing act, saving and investing for the distant future while also protecting what you have today. Consider thinking about your financial picture in terms of 3 broad categories:
- Preparing for emergencies - make sure you have money for unexpected expenses
- Protection - develop a plan to protect what you have
- Growth potential - reach your long-term goals
These 3 building blocks work together to put your finances in order. Learn more about these 3 categories from Fidelity experts.
Find ways to cut expenses.
It's difficult to find more money in the short term. If it were easy, we'd all be doing it already—so spending less is your best bet when looking for ways to save.
To get started, look at your income and spending. You don't need to track every penny—just having a rough understanding of how much you're spending in various categories can be helpful when creating or revising a budget.
Learn more: Save Money: Top Budgeting Apps
While there's no way to recession-proof our lives completely, it is possible to ease the blow if we take steps beforehand.
The best thing you can do is take action now so that you have time to adjust later. If the economy goes into another recession, you’ll be ready and able to weather the storm.
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Kevin Miller
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