Home 9 Budgeting 9 10-Step Guide to Secure Your Finances During Economic Downturns

10-Step Guide to Secure Your Finances During Economic Downturns

Apr 4, 2024

When the economy feels like it’s going down the drain, you need to have a solid way to secure your finances. The worst part of an economic failure is a recession. Unfortunately, a recession can bring lots of insecurities, loss of jobs, market volatility, and overall financial instability. Even though recessions can be scary and unpredictable, there are ways to prepare that can lower the impact of a recession on your personal finances.

Secure Your Finances: A 10-Step Guide for Thriving During Economic Downturns

In this article, you will find 10 steps to guide and help you prepare your finances to not only survive but thrive and give you the security you need when dealing with an economic recession.

1. Assess Your Currently Financial Situation:

Securing your finances during a time of crisis should be your main goal. Assessing your current financial situation is a crucial step to make sure that you will be okay if the economy experiences a recession.

The best way to start is by taking a very good detailed look at your financial situation. Reviewing your income, calculating your expenses, deeply reviewing your debts (if you have any), and managing your savings will give you a good understanding of where you stand with your money and this will help you make informed decisions moving forward.

2. Create a Budget To Secure Your Finances:

The next step is establishing your budget. This is a crucial step, especially during uncertain economic times. Knowing where your money is going will give you control of your personal finances. Having a budget will help you identify essential expenses, such as housing, food, and utilities, and prioritize them. This will allow you to cut back on non-essential spending and allocate any extra funds you have toward paying off debt and building an emergency fund.

Simple Life planner paycheck tracker

3. Build an Emergency Fund:

Because recession is so unpredictable, having an emergency fund should be one of your top priorities when you are reviewing your finances.

An emergency fund is your fallback savings in case of a financial emergency. As secure as your current job may be, during an economic recession layoffs are very common. It’s always better to be prepared in case this happens to you and your family so any extra money you can save, make sure you place it into your emergency fund first.

For the emergency fund savings aim to have at least three to six months’ worth of living expenses saved. Also, make sure to save the money in an account that is easily accessible. This emergency fund will act only as a financial cushion in case of job loss or unexpected expenses during hard times or a recession.

4. Pay Down / Pay Off Debt:

Debt consumes your income and stops you from saving and securing your financial future. Having any type of high-interest debt during an economic downturn can significantly strain your personal finances.

If you have any debt at all, make sure you are working towards paying them off as soon as possible. There are many ways to pay off your debt so check out the Avalanche vs. Snowball Budgeting Method for you to learn how you can budget and pay off your debt faster. Both the avalanche and the snowball methods will help you become debt-free but just work on one of the methods that will be better for your personal budget.

Also, when you have high-interest debt you may have the option to consolidate or refinance your debt. Keep in mind that this may help with lowering your interest rate but be aware that the loan consolidation will have fees added to it which may not be a better option in the long run to help you pay off your debt.

Having any type of debt, especially during an economic downturn will minimize your chances of having a secure financial future.

5. Diversify Your Income Sources:

If we are having an honest conversation then let’s be real so you can be fully prepared.

Relying solely on one source of income can leave you vulnerable during economic downturns. The reality is that an economic downturn often leads to layoffs and income instability.

Statistic: Monthly number of job losers in the United States from February 2022 to February 2024 (in millions, seasonally adjusted) | Statista
Find more statistics at Statista

This is one of the reasons why diversifying your income source is very important. During economic downturns, certain jobs are not recession proof and companies will downsize their workforce which may include your job.

Statistic: State unemployment rate in the United States as of January 2024 (seasonally adjusted) | Statista
Find more statistics at Statista

With this information in mind, there are several ways you can diversify your income streams. Having multiple sources of income can provide a certain stability during uncertain times. Here is an article on side hustle ideas to help you earn extra income.

Exploring freelance work, part-time gigs, or passive income opportunities can be a huge help for your financial situation.

6. Review Your Investments:

In an economic downturn, your investments can also be at risk. It’s very important that you regularly review your investment portfolio to ensure it remains aligned with your financial goals, how much you are willing to risk with your investments and the current economic situation.

Be prepared to adjust your investment strategy as needed to adapt to changing market conditions and capitalize on emerging opportunities.

7. Reevaluate Your Retirement Savings:

Like your personal investments, it is important to reevaluate your retirement savings as well.

While it may be tempting to pull your money out of your investment during an economic crisis, avoid making rash decisions based on fear. Instead, focus on your long-term goals and continue contributing to your retirement accounts.

Historically, the market has shown resilience and has eventually recovered from economic downturns, often rewarding those who remained patient and stayed invested. If necessary, consult a financial advisor for personalized advice.

8. Protect Your Personal Assets:

Just like your source of income, your investments, and retirement savings, it is also crucial that you review the various insurance policies you may have and/or need. Reviewing your insurance coverage, including health, life, auto, home, and disability insurance can reassure you that you are protected and have adequate coverage to protect yourself and your family in case of unexpected events during a recession.

9. Stay Informed and Flexible:

Staying informed and ready to make a change is as important for your financial future.

Keep on top of the economic news and trends so you can anticipate potential impacts on your own personal finances. Remain flexible and be prepared to adjust your financial plan accordingly as your situation evolves.

10. Focus on Your Well-being:

Lastly, remember to prioritize your physical and mental well-being during challenging times. Practice self-care, maintain a positive outlook, and lean on your support network for guidance and encouragement.

While the future is always uncertain, there are steps you can take so you are prepared for a potential economic downturn that can be beneficial to you. 

The Budget Academy
Fab Kellum author of the Girl, Get Out of Debt! blog

Hey you! Welcome to The Budget Academy. I am Fab, a survivor, a mom, and an entrepreneur at heart. Just like many, I have overcome financial struggles and I want to share with you how I did it.  I have a background in Finance and Real Estate and I’m passionate about helping others succeed and achieve financial freedom.  So, don’t be shy, let’s connect and start this journey together! Learn more about me here.