Are Your Finances Recession-Ready?
During challenging and uncertain financial times, individuals should hope for the best and prepare for the worst. So while we can (and should!) remain optimistic that our current economic downturn will reverse itself, it’s also wise to make sure to ready your finances for a recession. As a small business owner, you know your personal and business finances are tied together. Take these tips to recession-proof all your finances to the best of your ability.
1. Look for New Revenue Streams
Where there are challenges, there are opportunities. With that in mind — what kind of revenue streams can you create that didn’t exist or weren’t as lucrative before? Financial hardships are a great test for any business owner. Once you find new opportunities created by challenging times, let them be known to your customers and attack them with your best effort.
2. Grow Your Emergency Fund
Now is the time to build up your emergency fund as much as possible. You should strive to have 3 – 6 months’ worth of expenses set aside. While income is something you may have today, business owners know as well as anyone that it’s nothing to take for granted. Building up your emergency fund will give you the security blanket necessary to weather unpredictable times.
3. Don’t Be Afraid to Invest (If You Can)
It may seem scary to invest in a bear economy, but staying invested as the market goes down is something many financial advisors would suggest. Don’t let short-term losses obscure your vision of the market eventually recovering. The low prices of stock now can be seen as opportunities to make money once the economy rebounds.
4. Monitor Your Credit Score
Don’t let short-term challenges turn into long-term challenges. Prioritize things like your mortgage or rent, your utility bills and your debt payments so that you protect your credit score. Also, during times of widespread economic hardship, leniency for missed or late payments may be available to you. Be sure to communicate your needs to the businesses to which you owe money. You may be eligible for some payment relief.
5. Look Into Balance Transfers
If you have credit card debt that is currently accruing interest, it could be worthwhile to look into a balance transfer credit card. Balance transfer credit cards can help you avoid interest charges for an extended period of time — typically anywhere from 6 – 21 months — so long as minimum payments are made on time and the balance is paid off prior to the end of the promotional APR period. This then allows the card user to put more money into their emergency fund rather than focus as heavily on outstanding debts.
6. Mind Your Budget
Being diligent about your budget is even more important during periods of economic uncertainty. Generally, you should aim to have 50% of your take-home pay go toward needs, 30% toward wants and 20% toward debt payments and savings. When preparing for a recession, you’ll of course want to cut back in the “wants” category and increase money allocated toward savings.
7. Take Care of Yourself
Finally — and while this isn’t necessarily a finance tip — do what you can to stay even-keeled, calm and of sound of mind. While that may be easier said than done, practice the actions that will help that happen. Get physical exercise whenever and however you can. Don’t eat food to cope with stress. Talk with your family members, friends or a licensed therapist about your feelings. Taking care of yourself will enable you to take care of your finances to the best of your ability.