« Return to Blog

10 Ways to Recession-Proof Your Savings: Safeguard your money with our tips.

in Managing Money & Credit
recession-proof your savings

By now, you’ve likely heard the word “recession” more than a few times in recent months. Coworkers have started talking about it, you’re hearing it on the news more often, and your 401(k) is almost certainly being affected by rumblings in the market.

However, it can be difficult to know how to handle yourself financially when one does come around. It’s important to equip yourself with a firm understanding of what to look out for and know how to save money during a recession.

Planning for a recession is key to retaining financial security and turning any potential losses into savings.

What is a Recession?

Below are two common definitions for a recession:

A significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”

Two consecutive quarters of declining GDP.”

The latter definition comes from economist Julius Shiskin and is something of a “rule of thumb” definition. While the former definition comes from the National Bureau of Economic Research, which generally determines the start and end dates of formal recessionary periods in the United States. Though different, both describe what a recession entails.

What Causes a Recession?

There are multiple ways for a recession to begin, but a few of the big triggers include:

  • Economic shock
  • Uncontrolled debt
  • Bubbles (overvalued assets)
  • Inflation

A sudden shock to an economy can cause serious financial turmoil and cause a recession. Most recently, most everyone can relate to what the coronavirus pandemic did to the world economy. Other events, such as war, can also lead to severe negative economic consequences.

When a nation — or the institutions within them, spend excessively — it can lead to insurmountable debt. If you can’t pay your bills, bankruptcy can begin to wreak havoc. The Great Recession of 2008 and beyond is a great example of when too much debt caused serious economic issues.

A bubble can also cause a recession. When investors rely too heavily on emotion to make decisions it can lead to overvalued assets. When the hype eventually dies down and the market drastically corrects, a recession can ensue.

Inflation can be another major cause of recessions. When the Federal Reserve raises interest rates too quickly, it can lead to unaffordable goods and too few jobs. This combination hurts our economy and often results in recessionary periods.

Recessions impact consumers in many ways. People begin losing their jobs, it can become harder to find new jobs, and many jobs may start paying less.

From paying bills to buying groceries, spending becomes less affordable in a recession. That’s why knowing how to save money during a recession is important. To tread a recession wave, we’ve developed the following great tips!

10 Recession Savings Tips

There is a lot you can do to help put yourself in a better financial condition before a recession. Even during a recession, you can improve your situation by making wise choices about how to handle your money or make more of it. We’ll start with the most important recession savings tips, and then move on to some additional ways to help you save.

1. Manage and Reduce Debt

Getting rid of your debt is extremely important when money is tight. This type of financial obligation does nothing more than take extra money out of your pocket every month. Get rid of it and you can start to feel much better about the economy — recession or not!

There are multiple ways to eliminate debt. Some popular methods include:

  • Debt consolidation
  • Debt management plan
  • Debt avalanche
  • Debt snowball

Debt Consolidation

This method of debt reduction involves combining all your debts into one payment. The objective is to make paying your debt easier to do, and ideally, lower the payments.

If you think consolidation is an option, be aware of a few things. Consolidating your debts only makes sense if the terms are in your favor. You want to make sure you’re working with a reputable loan entity and that you can get a lower interest rate. If this is not the case, you could end up paying more,

Debt Management Plan

Creating a plan is always a good idea. Some organizations can help you negotiate with lenders to get lower interest rates or lower fees. They may even be able to handle everything with your lenders and then allow you to pay one single fee to them.

Debt Avalanche

The debt avalanche method involves taking care of the in descending order. The idea is to pay off loans that have the highest interest rate first. These loans are hurting you the most. After you pay these off, you can take your money and apply it to the loan with the next-highest interest rate, and so on down the line.

Debt Snowball

To take advantage of the debt snowball method, you pay off your smallest dollar loan first. Every time you pay off a debt, take the money you were using to pay it and apply it to the next-biggest loan.

Paying off debts may not seem like the most appealing method of saving, but it can do wonders in freeing up money you didn’t realize you had.

2. Make a Budget

It’s common for prices to rise during a recession, which means that your dollar is not going as far as it used to. To combat this, it’s good to have a solid budget plan in place.

Making a budget is an easy way to make sure you’re getting what you need while avoiding the non-essentials.

Start by reevaluating what the essentials are costing you each month. Gas, groceries, and rent have all gone up, so you have to plan accordingly.

After accounting for these, what’s left? Create a priority list of the non-essentials and start budgeting down the list. Whatever you don’t have money left over for at the end of the month is what gets cut.

It’s important to note that when you make a budget, you have to stick to it. If you don’t, you’ll have wasted your time and put yourself in a tougher spot.

3. Build an Emergency Fund

An emergency fund is a sum of money you save for, set aside, and hope you never have to touch. It will be there when you need it, but should not be used other than as a last resort.

A common practice for emergency funds is to save 3-6 months’ worth of expenses. Having this much money saved will allow you to cover yourself should you lose your job and times get tough. Putting this money away might feel unnecessary now, but you will thank yourself if you ever have to use it.

4. Increase Income

This may sound a bit simplistic, but the point is if you have an opportunity to make more money in some way, take advantage of it if it makes sense to do so. Sometimes finding additional work, or any work at all, during a recession can be tough. Here are a couple of ways you can put a few extra dollars in your pocket.

Consider a Second Job

This might be more of a “side hustle” or a “gig,” or it could be just your everyday job at the grocery store. If you can pick up additional income through a second job of any kind, it might be worth it to you later.

Remember, during a recession, things are more expensive and jobs are harder to come by. If you can take advantage of anything, it will help you stash away additional cash if harder times lay ahead.

Find a New Recession-Proof Job

Some jobs on the recession-proof list are harder to come by than others because of licenses or education, but here’s a trick you may not have considered: get a job in a recession-proof career.

Recession-proof jobs include occupations like teachers, nurses, accountants, or doctors. Even if you can’t get one of those jobs specifically, you might be able to get a job that supports one of them. Doctors need administrators in the office. Schools need janitors, teacher’s aides, and office assistants. Think creatively to find jobs that stay in business when times are uncertain.

5. Live Humbly

This particular tip is simple in theory, but can sometimes be hard to live by. We don’t want to live with less. We don’t want to give up on the things we love. But remember, if you don’t have the money, you shouldn’t spend it.

Spending more than you have will get you further into debt and can make life much harder. Recognize what you can live without and try your best not to splurge. Stick to the bare necessities as much as you can.

6. Improve Your Credit Score

Lenders have stricter guidelines during a recession, so it can be harder to get financing. Boosting your credit score is a good way to make sure you can leverage credit when you really need it, for things like mortgages, or auto loans.

Pay your bills on time and educate yourself on other ways to improve your personal credit score. It could help make sure you can take advantage of credit when lenders get a little stricter with their standards.

7. Buy Stock

If you have money available to take advantage of investing, a recession is a perfect time to buy stocks. This is when stocks are at a “discount.” It may seem like a crazy thing to do, but we know that markets are cyclical and stocks will bounce back. Buy stocks in a diversified fund while prices are low. As soon as the market starts to turn around, you’ll thank yourself for this.

8. Don’t Sell in a Panic

This is the other side of the coin. Unfortunately, when the market starts to turn down, we fret and immediately think we should start selling our stocks. That is historically a bad idea.

When it comes to stocks and the market, remember to keep your head about yourself and think logically. A sure way to lose money is to sell your stocks when they’re low. If you don’t sell, you don’t lose. Stay strong and eventually things will start to look up!

9. Continue Saving

This tip should go without saying, but important enough to emphasize. Keep saving! Every penny matters, but every penny saved matters even more. If you can save during a recession, it means you’re likely following the other 8 tips we’ve already discussed and you’re doing things right.

When you continue to save, you will continue to create a safety net for yourself later on down the road. Remember, life isn’t just about now, there will be a later and you’re going to be there. Set yourself up for success in a few years by continuing to be diligent in your savings. Whether you’re close to retirement or it’s still a few years off, everything you do now in preparation for it will help.

10. Choose a Credit Union

Credit unions are a great option when it comes to where you should save your money.

Credit unions are nonprofit cooperatives, owned by the people they serve. This means that instead of trying to make huge profits, a credit union is really there to serve your interests. This is never more important than in a recession. Surely, you remember why the last recession was caused in the first place. Credit unions avoid greedy lending practices and keep members first in mind.

Other benefits of credit unions can include lower account fees, higher interest rates, and better rates on any loans you may need.

Most importantly, since credit unions are owned by their members you are likely to get top-notch, personalized service.

Get Your Finances on Track with Lafayette Federal

We care about our member’s financial condition. No matter how the financial marketplace is faring, we work to make sure our members feel secure about their money.

Visit our website for more details, or stop in to speak with a member-focused representative.

Not a Lafayette Federal member yet? You can become a member by completing an online membership application.

auto loans 101

Auto Loans 101: Your guide to rates, terms, and repayments.

Paying for a vehicle in cash isn’t always possible — nor is it always recommended. Auto loans can offer an easy and affordable way to fund a vehicle. And with some prudent financial skills, there are ways to prevent going into too much debt, while also helping your financial situation.

Read more

bidding wars: buying a house

Bidding Wars: Buying a house over the appraised value.

With housing inventory relatively low and demand from buyers high, today’s real estate market requires buyers to be extra strategic when entering the market. Spring of 2021 showed over 70% of home listings resulting in a bidding war —which can certainly be stressful and frustrating to buyers, to say the least.

Read more

buy vs rent

Buy vs Rent: Which is the best option for me?

Making that crucial decision to buy versus rent a home is one that is personal to you and your situation. Each option has pros and cons to consider before moving forward. Determining what’s best for you should be based on your own circumstances, and should take into consideration the following information.

Read more