The economic challenges of running a household can be demanding even in the best of times. But when a recession hits, keeping a family financially above water can be stressful.
That’s why it’s so important to prepare. By taking a few disciplined steps now, you can better position your family to withstand economic hard times.
In this article, we’ll discuss what you and your family can do now to ride out a recession successfully. But first, let’s briefly explain what we mean by the term “recession.”
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A recession is one of the natural phases of an economy. It’s the period when the economy fails to grow. It typically lasts for several months but can linger for years.
Businesses struggle. Many fail. And the unemployment rate increases.
Investments are more likely to lose their value. Meanwhile, banks may be less willing to take a risk on loan applications.
The Impact of a Recession on Family Finances
During a recession, families often face significant financial challenges. The impact of a recession on family finances can be felt in various ways.
Firstly, job insecurity becomes a major concern as companies may downsize or lay off employees to cut costs. This can lead to reduced household income, sudden unemployment, and a loss of benefits like healthcare coverage. Quite naturally, families in situations such as this may struggle to meet their basic needs, such as paying bills, buying groceries, or covering housing expenses.
Additionally, during a recession, the housing market tends to suffer, causing property values to decline. This not only impacts homeowners but also affects families who rely on rental properties. Lower property values can lead to underwater mortgages, meaning families owe more on their homes than they are worth. The inability to sell or refinance their houses can place an additional burden on family finances.
A recession also often brings about a decline in investments and retirement savings. As stock markets fluctuate, families may experience a decrease in the value of their investment portfolios and pension funds. This can disrupt long-term financial planning and force families to reassess their retirement goals and strategies.
Furthermore, access to credit becomes more challenging during a recession. Banks and other financial institutions tighten their lending criteria, making it harder for families to obtain loans, credit cards, or lines of credit. This can impact families’ ability to finance education, start businesses, or make necessary purchases, further straining their financial situation.
It is also worth mentioning how all of these things can impact one’s mental health. The psychological toll of a recession is not one that should be underestimated. Financial stress can lead to increased anxiety, depression, and strained relationships within families. The uncertainty and financial pressure can create a stressful environment, affecting the emotional well-being of family members.
The first thing you need to do is to get an accurate financial picture of your family. That means knowing how much money is coming in and going out.
Make a detailed list of all your dependable sources of income. Besides your work salary, include any side jobs you have. Also, list projected bank interests on savings and possibly checking accounts.
Don’t forget dividends from investments. And there’s also cash back from certain credit cards.
Once you know how much money you presently bring in, you want to know how much is spent each month. Gather household bills, debts, grocery bills, and all purchases of discretionary items. Review your list and see where you can tighten your belt.
Reallocate as much money as reasonable toward an emergency fund. You should always have enough money in your emergency fund to shelter, feed, and clothe your family for at least three months. But considering how long a recession can last, aim for six months.
Another way to prepare for a recession is by diversifying your income. If you have only one source, you’re more vulnerable.
Take advantage of economically stable periods to establish a secondary stream of income. There are many businesses you could start, and one popular option is opening a franchise. We’ll discuss this option in greater detail in the next section to help you make an informed decision.
You’re probably already a fan of the parent company. After all, you may be a longtime customer. But don’t invest your money too quickly! Before starting a franchise, you need to get a glimpse of life on the other side of the checkout line.
Arrange with franchisees to visit their locations to ask questions. Often they’re quite willing to freely give of their time and experience. They know that you aren’t a direct competitor because the parent company will only allow you to open a franchise if it’s far enough away from other franchises.
Find out how much time it takes per day to oversee the franchise. Ask about the most persistent demands of the job. You also want to know how helpful the parent company is once you launch your operation.
Some franchisees may even be willing to discuss financial matters. For example, see if they will give you an indication of how much they have to spend to market their business. And ask for suggestions for keeping good bookkeeping records.
These are just a few things to consider if you want to open a franchise. But make sure you do thorough research before deciding on this particular investment. You should also keep in mind its viability during a recession.
No one wants to dismantle their family’s way of life for the economy. Fortunately, there are simple steps you can take to save money without causing a major disruption to your homelife.
Form a habit of only lighting, heating, and cooling a room that’s in use. It’s not unusual for the electricity and HVAC to the upstairs to be in full use when the entire family is downstairs watching TV together. Depending upon the season, fans, sweaters, and blankets all go a long way toward lowering your electric and gas bills.
Schedule your laundry days carefully. Avoid operating the washer and dryer until you have a full load. Simple garments and kitchen towels often only need hand washing. You can then save additional money by allowing them to air dry.
How many subscription TV services do you have? It’s easy to forget how much they’re costing you if the payments are automatically charged to your credit card monthly or annually.
Are there subscriptions you could drop? Perhaps, you subscribed to a particular service some time ago in order to watch a specific TV show. Do you still use the service? If not, why not use the subscription fee for something else, like increasing your emergency fund?
Food delivery may be convenient, but it carries a heavy price tag. Not only is the food expensive, but so are the delivery fees and driver tips.
Replace delivery with home-cooked meals. Find simple recipes that require 20 minutes or less in the kitchen. It saves money, it’s a good way for the family to spend time together, and it could even benefit your health.
Sometimes it’s easy to feel that all payment obligations are equal. But they’re not. You have to decide which would have the greatest negative impact on your family if you failed to meet the requirements.
For example, falling behind on your mortgage or rent would be more serious than canceling a vacation and losing a non-refundable deposit.
Contact your debtors and renegotiate your payments. Nearly all your debtors will be willing to work out a deal because they would rather you pay something than nothing. That includes your credit card companies.
In exchange for reducing your minimum monthly payment, credit card companies may temporarily freeze your use of the card. But that can be a good thing. It would give you several months to get the account under control without the temptation of spending.
If utility bills become overwhelming, gas and electric companies are also willing to offer you a payment plan to help you catch up. If you need additional help, there are social services and nonprofits available to pay your heating and cooling costs. Your utility company can even give you a list of the agencies with whom they regularly interact.