It's been ten years since the Great Recession, and many may feel like the U.S. has fully recovered. Indeed, several economic indicators suggest that the recovery is complete: U.S. consumer confidence is at an 18-year high as of September 2018, unemployment is low, and the average FICO® Score* in the U.S. reached 704 in April 2018—highest average FICO® Score on record.
While these measures don't tell the whole story for many of us, they do show that consumers could be feeling more confident about their financial situation and more effectively managing their credit since 2008.
What Did the Great Recession Cost You?
Based on research estimates, the Great Recession cost Americans, on average, $70,000 in lost income during their lifetimes, according to the Federal Reserve Bank of San Francisco. Some Americans could very well still be struggling to make up ground from the Great Recession either due to lost financial opportunities or a dip in their credit.
So now that the economic recovery is deemed complete, are you ready for the next one?
How to Prepare Against Financial Setbacks
You can prepare against financial setbacks using the same strategies used to reduce debt or improve your credit scores. Consider these strategies to prepare for an unexpected financial event in your life:
1. Set up an emergency fund with a savings account at your bank.
Then, have money automatically deducted from your paycheck or bank account every week. If you have direct deposit through your employer, you can schedule a certain percentage to go to your savings account. There are several new savings apps that can help you achieve an emergency fund as well.
2. Reduce your debt.
To pay off debt, you first need to know how much you owe. That includes your mortgage or rent, car payments, student loans, credit cards, other types of loans, and any other monthly debt payments you have such as a cell phone bill or collections account. Then decide how you can start to pay more than the minimum monthly due to lower that total debt amount. If you can't, you may want to consider a debt consolidation loan. Depending on your choice, try to avoid taking on any new debt.
3. Start a side hustle.
Or consider getting a second job to earn more money. Making more money can help build your emergency fund and reduce your overall debt. You can start a side-hustle sharing your skills and expertise such as writing, tutoring kids, landscaping, driving for Lyft or Uber, or sharing your home on Airbnb. Having the extra income will help if and when a recession hits.
4. Cut down your costs.
Make your savings go farther so you can keep up on all your bills in the event of a recession. One way to do this is to look at all your monthly bills and evaluate whether there are expenses you can drop, such as your cable television or landline phone bill. Other cost-cutting tips include cooking more, making coffee at home, not eating out for lunch each day. Finding more ways that you can save each month will help make life easier in case of a recession.
5. Clean up your credit report.
This may not seem like a need, but as we learned from the 2008 recession, lenders could tighten their requirements for borrowers to get approved as they did for home loans. Having a clean credit report and good credit scores will help your chances of getting approved for a loan if needed during this time. This is a good time to check that any late payment information on your credit file older than 7 years has been removed. If it is still showing up, dispute it.
6. Know your financial profile.
It's important to know how your financial profile looks to lenders before making a financial decision. That way, you'll know what's needed to get the best terms for a new credit card or a new loan. Check your free Experian Financial Profile today to see how lenders view your level of risk.
Editorial Disclaimer: Opinions expressed here are author's alone, not those of any bank, credit card issuer or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate as of the date of publication.
This article was originally published on October 25, 2018, and has been updated.
*Credit score calculated based on FICO® Score 8 model. Your lender or insurer may use a different FICO® Score than FICO® Score 8, or another type of credit score altogether. Learn more.