How to Handle a Recession When You’re Low-Income

Are you worried about how a possible recession or an economic slowdown could influence your financial situation? If you are lucky and you have a little time to prepare your finances, then you do not need to worry anymore. There are many habits that you can work on daily to guard yourself before a potential recession hits. The best case scenario is that you are so prepared and you manage your finances so well that you do not feel the effects of a recession at all! This article will tell you about seven daily habits that will help you successfully manage your finances.

7 Ways To Keep Your Finances In Check During a Recession

You might not think that it is possible, but you actually can prepare for a recession. Of course, you never know when a recession could happen. But, you can prepare yourself all the same until it does. If you want to maintain your finances, then you should start add the following habits to your lifestyle:

  • Establish an Emergency Fund
  • Change Your Lifestyle and Live With What You Have
  • Look For an Additional Source of Money
  • Think About Making Long-Term Investments
  • Keep Your Antennas Up About Risk Tolerance
  • Diversify Your Investment Portfolio
  • Never Let Your Credit Score Go Down

Establish an Emergency Fund

If you have a lot of cash stored in a high interest, Federal Deposit Insurance Corporation (FDIC)-insured account, then it might be your lucky day. Your money in this account will maintain its full value in a recession and it will be extremely liquid. This means that you will have easy access to money, in the case that you lose your job or you are forced to take a pay cut.

Additionally, in the case that you have your own cash, you won’t have to rely on borrowing to pay off unexpected expenses. Credit availability is likely to dry up faster when a recession takes place. When these things occur, you should use your emergency fund to cover all of your necessary costs. But, you should tighten up your budget on necessities only to make sure that your emergency fund lasts. Also, you should constantly work on restoring your emergency fund whenever you get the chance.

Change Your Lifestyle and Live With What You Have

You should make it a habit to live with what you have every day, even if it is during a good time in your life. If you manage to achieve that, then you are less likely to worry about going into debt when prices increase. Additionally, you will have a better chance of adjusting your spending in other areas. Debt leads to more debt when you are unable to repay it right away.

If you have a partner and you live in a two-income household, then you should figure out how you can live off of only one source of income. This could be yours or your partner’s. If you are in a good financial time of your life, then you will be able to save a large amount of money. You could pay off your mortgage or retire early with this daily habit. On the other hand, if you or your partner loses a job, then you will not feel much financial strain. You will be able to remain financially stable, since you are used to living off of one income. In this context, you might need to stop adding to your savings. But, your daily lifestyle can continue as normal as it did before you or your partner lost a job.

Look For an Additional Source of Money

You might have a great full-time job and it could pay well. But, it is never a bad idea to consider looking for another source of income on the side. You could sell collectibles online or work as a consultant. Either way, you will be able to achieve more job security because of your multiple income streams. You should keep in mind that diversifying your income sources is just as important as diversifying your investments. In the case that a recession hits and you lose one income source, then you can still rely on your other job for income. You will not be earning as much money as before. But, you will not be completely cut off from a steady flow of money. You never know; there is a possibility that you could come out on the other side with a new business.

Think About Making Long-Term Investments

Let’s say that a drop in the market takes place and brings your investments down by 15%. What happens then? The simple answer is nothing. If you do not sell, then you will not lose anything. The market is constantly fluctuating, but in the long run, you will have a lot of chances to sell high. If you decide to buy when the market is down, then you will thank yourself later for it. Additionally, you should make sure that you have enough money flowing in liquid, low-risk investments as you close in on retirement. This will allow you to retire on time and provide the stock sector of your portfolio to recover. You have to keep in mind that you do not need all of your retirement money when you are 65 years old, only a portion of it.

Keep Your Antennas Up About Risk Tolerance

A lot of investment experts state that individuals at a certain age group should have their investment portfolios allocated in a particular way. But, that might not necessarily be true. If you are losing sleep over your portfolio and worrying yourself half to death, then maybe you should consider changing your asset allocation. Investments are designed to offer you with a sense of financial stability, not financial panic. However, you should not sell anything from your portfolio when the market is down. If you do that, then you will solidify those losses. When the market improves, you should think about selling some of your stocks for bonds. Additionally, you should think about trading in some of your risky small-cap stocks for less unstable blue-chip stocks.

You should be careful not to misjudge your risk tolerance, since it could lead to bad investment decisions. Typically, you should have 80% in stocks and 20% in bonds at a certain age bracket. But, you should not consider this as a one-size-fits-all rule. You will never be able to see the returns on your investments, if you sell while the market is down.

Diversify Your Investment Portfolio

If you do not have all of your eggs in one basket, then you could weather financial storms. This will make it easier on your mental state to deal with the market when it is down. If you are a homeowner and you have a savings account, then you are off to a good start. This is because you have some cash and some funds in real estate. Typically, you should try to establish an investment portfolio where the pairs are not correlated. This means that when one is up, then the other one is down, or vice versa. Additionally, you should think about asset classes and stocks in businesses that are not involved in your main job or income source.

If you make these financial strategies happen, then you will be financially secure during an economic slowdown and you will not be affected by the market conditions.

Never Let Your Credit Score Go Down

When credit markets tighten, it will be harder for people to get approved for credit. If anyone will receive approval for a mortgage, credit card, or any other type of loan, then approval will go to people with great credit. To keep your credit score high, you should pay your bills on time and keep your credit cards open, no matter how old. Additionally, you should try your best to make your debt-to-available credit ratio low.

During bad financial times in your life, you should keep a strong communicative relationship with your creditors through arrangements to allow your accounts to remain in good standing. It will make them feel assured and not worry that you are unreliable. There are many lenders that would prefer to have you continue as a customer, instead of writing off your account as bad debt. Remember that your creditors want to make you happy just as much as you want to make them happy.


In conclusion, there is so much that you can do to be able to weather a recession. You do not need to be a millionaire or an old Scrooge to make it happen. All you need to do is incorporate seven daily habits into your lifestyle and you will be as safe as anyone can be during a recession. These seven habits are: establishing an emergency fund, never letting your credit score become low, living within your means, and diversifying your portfolio. Additionally, you should look for another source of income, remain honest about your risk tolerance, and consider long-term investments for your portfolio.

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