Put simply, Americans’ relationship with money is broken. It’s no secret that most Americans live paycheck to paycheck. That staggering statistic never ceases to sadden me. Unfortunately, widening income inequality is only worsening the problem.
Over the past decade’s bull market, the unemployment rate has steadily dropped as the market has reached record highs.
But if you ask most American’s, you’d find that they haven’t seen their financial prospects mirror the recovery they see on TV or read about in the news. With only slightly over half of Americans investing in the stock market, it’s no wonder most aren’t jumping for joy when the market increases.
Headlines highlighting weak economic data are fueling fears of a recession. Knowing that many Americans already don’t feel financially secure, a potential recession would have devastating consequences. For that reason, now is the time to start making changes to prepare for a potential recession.
Metlife recently conducted a survey and found that 40% of respondents have started saving more money to support themselves due to talks of a potential recession. The fact that many are taking action is promising, but the fact is that the majority of respondents aren’t.
Now Is The Time To Take Action. Be Proactive.
The first thing you need to do is make sure you have a cash buffer. Well, not necessarily cash, but money set aside that you can quickly access in case of an emergency. I recommend using a high interest savings account.
This will be your emergency fund should you need it. Its main purpose is to make sure you can keep a roof over your head, food on the table, and have transportation to get to work. So how large should your emergency fund be? I typically recommend three to six months of basic living expenses.
In tough economic times, you’ll want to save closer to the six month mark if you have no other access to capital.
If you, like most Americans, have trouble saving money, you’ll want to make and keep a monthly budget. A budget is simply a spending plan for your money.
If you need help creating your budget, there are many free and inexpensive apps and services that you can use to help guide you. Try to save at least 15% of your after-tax take-home pay.