How to prepare for an economic downturn

The US economy has contracted for two consecutive quarters and experts are divided on the forecast of a possible recession. What is clear is that the economic uncertainty will not end soon. However, there are some steps you can take ahead of time should we find ourselves in a more dire financial situation.

Yiming Ma, a professor at Columbia University, says the question about the recession is not whether it will happen or not, but when it will happen. People should prepare but not panic, she said.

“Historically, the economy always goes up and down,” Ma said. “It’s something that just happens, it’s like having the flu.”

But some people’s immune systems allow them to recover faster than others, he added.

If you think the recession could destabilize your finances, here are some preventative steps you can take.

Measure your expenses and create a budget

Knowing how much you spend each week is key. Ma recommends sitting down and writing down (or typing in) how much you spend each day. This will help you know your income and payments, and you will be able to determine which expenses are unnecessary.

The federal financial education program “Money Smart” also recommends this first step.

“By understanding how much money you have and how much money you spend, it is possible that you can implement changes that will help you in difficult times”, recommends the government agency.

Once you have made a budget, you will be able to identify where you are spending more than necessary. An additional benefit is that you will be able to identify unnecessary expenses and delete them in order to create a savings plan.

If budgeting is hard for you, there are guides like Bank of America’s “How to Create a Budget” or Accion Opportunity Fund’s Easy Guide to Budgeting that can help.

save when you can

Although having an emergency fund to pay for basic needs is ideal, the reality is that many people cannot save every fortnight. The more unnecessary expenses you can cut, the more you can save. Ideally, create a budget that covers your basic needs for a period of 3 to 6 months, said Gene Natali, co-founder of Troutwood, an app that helps people create financial plans.

Programs like America Saves, a nonprofit campaign of the Consumer Federation of America, help you create a plan to organize your finances.

If you have a savings account at the bank, it’s important to check if your bank gives you a good interest rate, Ma said.

“It helps to find out what other banks offer so you know where to keep your savings, instead of leaving them in the bank they’ve been in for the last 20 years,” he said.

Ma’s recommendation is to look at monthly fees and service charges that can lower the amount of your savings. But don’t limit your options, because sometimes online banks offer better rates than traditional banks.

Consolidate your loans, do not take more

As the interest rate rises, experts recommend that you consolidate your loans so that you have a debt with a fixed interest rate. If possible, pay as much as possible to save money in the future.

“Job stability tends to be worse when there’s a recession (and) it’s not a good time to rack up debt,” Ma said.

As it is difficult to pay a debt, there are guides that help you form a plan. Such is the case with the guide on how to get out of debt from the Federal Trade Commission.

When inflation rises, it is not a good time to take out new loans to pay for large expenses such as a new car. However, experts recommend that it is better to buy appliances such as vacuum cleaners, stoves or mowers, or any other durable appliance as soon as possible to avoid increasing their prices in the future.

Visit thrift stores

Allen Gelon, who works as a caregiver in California, has been affected for months by the high prices of household products such as his groceries, kitchen towels and gasoline.

His son’s favorite juice, Hi-C Orange, used to be $1.99 for a six-pack and is now $2.50. Since the start of the COVID-19 pandemic, when Galeon stopped working with multiple families and only stayed with one family to reduce the risk of illness, his family has faced financial instability.

One of the measures Gelon has taken has been to buy clothing and electronics from thrift stores, be it Goodwill, pawnshops or Craigslist. Craigslist allows you to search for sellers in your area, so you can avoid driving, which saves you gas.

Negotiate your monthly receipts

Since the start of the pandemic, many companies have updated their support policies and are more flexible with their customers, said Kia McCallister-Young, director of America Saves.

Calling your monthly service providers to negotiate your bills, whether it’s the utilities, your phone or internet company, can help you pay less, McCallister-Young said. People can ask about the best price, available discounts or coupons that can help lower the monthly amount, she added.

“If you tell them ‘I’m thinking about switching companies,’ it helps let them know you’re considering not continuing their services and they can give you the best price. The goal for now is to save as much as possible,” McCallister-Young said.

Federal programs like the Low Income Home Energy Assistance Program help you lower your utility bills, or Lifeline helps you pay your phone bill. If you are not sure if you qualify for a federal or state program, you can call 211, where you will be connected to local specialists who can help you find the right program.

Save in your pantry

Visiting the supermarket with a list of dishes, buying generic brand products or buying in bulk are some of the recommendations of the Consumer Federation of the United States.

“A lot of the stores offer you to compare prices, if you show them that their competition has the same producer at a lower price, they will match the price,” McCallister-Young said. “You should also look at stores that are close to your home, so you can save on gasoline.”

Another alternative to save money on your pantry is to visit applications like Olio, which connects you with people in your community to share pantry that they will no longer use. Or you can use Too Good To Go, where customers can buy extra business food at a reduced price. Both applications are only available in English.

Learn about government public assistance programs

Even when you try to save, there are times when your salary does not cover your basic needs. If you find yourself in this situation, there are programs across the country that can help.

“Sometimes there’s not enough money at the end of the month,” said Michael Best, an attorney with the National Consumer Law Center, which works on financial services issues.

To use this help, check to see if you’re eligible for programs like the rental assistance program, food stamp program, farmers’ market nutrition program, or the homeowners assistance fund. All of these federal programs are coordinated by their respective states. Some states offer additional assistance.

Find help in your community

If you find yourself in a situation where you can’t afford food or housing, look for assistance programs from non-profit organizations around you. From help finding housing, food banks, or help paying your utilities, these non-governmental organizations can help. National organizations like Feeding America have food banks in every state in the country.

“We are seeing that the community is not asking for a greater amount of help due to the economic situation in the country,” said Kavita Mehra of the organization “Sakhi for South Asian Women”, an organization that provides help to survivors of domestic violence in New York. .

Your organization provides housing, food, and financial assistance to people in your community. From January to June, his organization has distributed more than $150,000 in financial assistance to survivors in need. So far this year, the organization has surpassed the amount of resources it provided to the community in 2021.

Organizations that help with food assistance such as “Ample Harvest”, “Hunger Free America” or “Food Rescue US” offer maps that allow you to find food banks near your home.

take care of your mental health

Between the anxiety of paying your bills or not knowing what will happen to your financial future, your stress levels can get quite high.

“It’s a chaotic existence,” Galeon said. “You have to organize yourself very well and stay calm to take care of your mental health.”

Debra Kissen, clinical director of Light On Anxiety CBT Treatment Center, recommends that you first learn to recognize when your body is stressed. In addition, she recommends doing relaxation exercises like breathing, touching a wall to calm your stress, or doing the “five senses to relieve anxiety” exercise.

Most health insurance covers some type of mental health support. If you don’t have health insurance, you can look for therapists who offer affordable rates. You can search for therapists in the FindTreament.gov and the Anxiety and Depression Associated of America directories.

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