Recession-proof your financial house

The Baltimore Sun

Talk of recession abounds, but it is mostly an academic discussion until you talk about how economic hard times affect you. As the saying goes, a recession is when your neighbor gets laid off; a depression is when you do.

In shoring up your financial house against recession, you should watch both sides of the household money ledger, earning and spending. For many, the earning side largely consists of assessing your job security. Updating a resume, networking and keeping an eye out for job opportunities in the newspaper or online job boards also could be a wise use of time.

If you are self-employed, project how your sales will be affected by a slow economy, and brainstorm adjustments and other revenue sources. Those who depend on investment income, especially from interest, are in a tough spot. There are few safe harbors that pay anything more than minuscule interest, and the stock market is erratic.

Fortunately, you have more control over the spending side of the ledger, so that's where you should spend more of your effort. Here are ideas on recession-proofing your money life:

Take stock.

During bountiful times, it's easy for household spending to run amok. Start by poring over recent debit card and credit card statements, along with your check register. Look for wasteful spending. Also examine recurring spending, such as video-rental clubs or satellite radio. Multiply their monthly costs by 12 and evaluate if that annual spending is worthwhile. Then look for possible painless reductions in service, such as dropping a premium package of cable TV or Web access on your cell phone. Resolve to track spending, especially cash expenses.

Play what-if.

Once you are back in touch with your itemized spending, play the what-if game. What if I lost my job tomorrow? What expenses could I quickly cut out or cut back on? How much money do I need to eat, keep a roof over my head and keep the lights on? How many months could I survive without my regular income?

Plan for rain.

Many households receiving a tax refund and tax rebate could be looking at a cash infusion of thousands of dollars. Many married couples with two kids could receive in the neighborhood of $4,000, based on the typical refund and rebate. If you don't have a rainy-day fund of three to six months of bare-bones expenses, now is the time to build one. Using tax money is a good start.

Stash the cash in a higher-rate online savings account, such as EmigrantDirect.com, HSBCDirect.com or INGDirect.com. And then set up an automatic deposit from your regular checking account to the savings account. Before long, you will build a cash wall between you and whatever a recession brings on.

Set up escape routes.

Taking on unnecessary debt is a bad idea during tough economic times, but credit lines can provide an emergency escape route. If you are a homeowner, the time to try to open a home-equity line of credit is before you lose a job. You might not be able to get one after.

In addition, call your credit card companies to ask how much they will raise your credit limit without pulling your credit report, which shouldn't affect your credit score. But don't be tempted by the availability of more credit to use it unnecessarily.

Finish paying.

Examine your nonmortgage debts, and complete paying for things you bought. You can start by paying extra on the highest interest-rate debt first. Or you can start with the smallest debts to quickly rid yourself of them. You want as few financial obligations as possible when bad times arrive.

Take a time out.

Do what corporate America does when recession hits: Cut costs. You might consider your own worker layoffs, such as a lawn service, housekeeper or laundry service. Spend on only essentials for one month. It will highlight for you the distinction between needs and wants. Delay discretionary purchases. And don't commit to any new monthly expenses.

Get FIT.

Pluck spending cuts from low-hanging fruit by becoming financially FIT. That stands for food, insurance and telecommunications. These are three areas of spending where most Americans can make significant, but relatively painless, spending cuts.

Care about what things cost.

Prices for identical items are often not the same. In fact, prices vary widely on a range of products and services, depending on where or when you buy them. Know what a good price is before you open your wallet. For merchandise, use online comparison Web sites, such as Google Shopping, MySimon.com, Shopzilla.com and DealTime.com. Check prices on eBay and Amazon.com.

yourmoney@tribune.com

Gregory Karp writes for The Morning Call in Allentown, Pa.

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