How Will A Recession Affect My finances?

With talks of a recession hitting the U.S. soon, you may be wondering how it will affect your finances? While there might not be anything we can fully do to change our economic situation, there are ways that we can prepare and protect ourselves during a recession. 

Here are three things to implement into your life as you prepare for the future. 

1. Pay down high-interest debt balances

Many times credit cards can be the bane of our existence when we are hit with their high-interest rate payments. That is even more true at a time when the Federal Reserve is likely to lift its key borrowing benchmark seven times this year. The Fed’s interest rate — known as the federal funds rate — influences all other forms of short-term borrowing. Eliminating that debt could create some crucial breathing room in your budget that you can use towards your emergency fund.

2. Build an emergency fund

When times get tough and you don’t know what the future may hold it is good to know you have a financial cushion to fall back on. Assembling six months’ worth of expenses can seem like a daunting task, but don’t underestimate the power of small contributions. Regularly adding to your savings account over time can build a crucial savings habit.

3. Find areas to cut back in

We know it doesn’t sound fun, but find the things in your life that aren’t necessary and save that money for something else. Experts typically recommend spending no more than 30 percent of your net income (that is, earnings after taxes) on discretionary items.