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5 ways veterans can protect their finances from the upcoming recession

Lyle D. Solomon Avatar
SCHOFIELD BARRACKS — Military Saves Week runs from Feb. 27 to March 3. The Financial Readiness Program is offering financial counseling, classes and other events to help service members and their families manage their money. (U.S. Army photo by Kristen Wong)

The economy is the primary concern of the day. Despite three increases in interest rates by the Federal Reserve earlier this year, inflation is soaring with no signs of abating. And with additional rate hikes on the horizon, many are concerned that the Fed’s efforts to slow economic growth could lead to a recession.

Veterans face unique dangers during economic downturns. They do not have to worry as much about job security as civilians do, and military retirees receive lifetime income regardless of stock market fluctuations. But they also lose substantial job security and tax benefits when they leave the military. Even if you have a steady income now, you must still safeguard your finances against a potential economic downturn.

A recession or market downturn is inevitable as part of the economic cycle. If unprepared, the consequences may force you to adjust to your lifestyle and financial goals and make difficult choices. Taking precautions to protect your finances can make a huge difference, so ensure you do these 5 things before the next economic downturn hits: 

Set your financial priorities straight using a budget plan

That is why it is critical to understand your financial situation. You know how much cash you have on hand and how much you can access quickly for an emergency. You should also know how much debt you currently have and how much monthly living expenses.

Now is the time to assess your current spending and plan for your needs over the next six months. Suppose you’re well-prepared for a recession, job loss or other financial difficulties. In that case, you’ll have an emergency fund that covers three to six months of living expenses and, hopefully, a healthy retirement nest egg.

Volunteers with the Navy-Marine Corps Relief Society (NMCRS) conduct the Budget for Baby Workshop at Marine Corps Air Station Yuma, Ariz., July 9, 2019. The NMCRS helps service members and their families prepare financially for their baby’s arrival. (U.S. Marine Corps photo by Cpl. Sabrina Candiaflores)

Start by developing a fundamental understanding of your spending habits and creating a budget. Calculate your household income from all sources, including you, your spouse/partner, and any side hustles that bring money into the household. Include income from investments and other sources, such as child support.

Next, list your monthly expenses, such as rent or mortgage payments, utilities, groceries, medical bills, childcare costs, home and auto maintenance, debt payments, and insurance premiums, as well as any other regular expenses, including those paid only once a year. Add everything up to see if you’re spending more, less, or about the same as your monthly take-home pay.

Finally, prioritize your essential expenses and determine the bare minimum you can spend in a given month to get by in case you or your spouse/partner loses your job.

Your budget may need to be adjusted in anticipation of a recession. Reduce non-essential spendings, such as entertainment, cable, and clothing. While it is unrealistic to eliminate all discretionary spending, it is essential to distinguish between wants and needs. Examine your finances for areas where you may have overspent. 

Increase your income and then your savings while you can

A crucial step in managing your cash flow is analyzing your expenses to determine what you can exclude from your budget or temporarily suspend. Don’t forget, however, that you can also work on improving the incoming cash flow.

There are numerous ways to increase one’s income. The right path for you will depend on your circumstances, skills and passions, but here are a few options to consider:

  • Request additional shifts or overtime hours at work, if possible.
  • Look for part-time jobs that you can add to your current responsibilities.
  • Freelance work or consulting on the side can also help boost your monthly income.
  • Take on additional responsibilities or projects at work as leverage to better position yourself for promotion.

And when you increase your income and decrease your expenses, you will have additional monthly cash flow. You can use the extra funds to:

  • Increase your emergency fund, especially if you fear a recession and the possibility of losing your job.
  • Increase your retirement account contributions to build long-term financial security.
  • Add to your investment portfolio outside of retirement by, for instance, opening and funding a brokerage account (or increase the amount you invest each month if you already have a portfolio outside your retirement savings)
1st Lt. Bryan Fuller, who is the assistant S2 (Intelligence, security, and information operations) for the 138 Field Artillery Brigade, Kentucky National Guard and community president of first Southern National Bank, poses with his wife, Jessica, and two sons, Ace, 5, Talon, 1. Fuller pitched for the Lexington Legends during the Battle of the Bourbon Trail this summer. (Courtesy photo)

Make long-term investments

When contributing money to the market, long-term investors should use dollar-cost averaging. When you dollar-cost average, you spend the same amount on a consistent, predictable schedule.

To protect your finances and investment portfolio during a recession, you must continue to invest even if the market is falling. It is especially true when the market is falling. If you only invest when the demand is rising, times are good, and everyone is upbeat, you will pay increasingly higher prices. And if you stop investing when the market falls, you will never be able to take advantage of the market’s lower prices.

Contribute a portion of any bonus or raise to your TSP. And don’t let fear of a market downturn cause you to be overly cautious with your investments. Stocks have outperformed other investments in the long run, and if you panic and withdraw your money from the market, you will miss out on the benefits when the market recovers.

Make sure your investments correspond to your timeframe. A target-date or life-cycle fund, such as the TSP’s L Fund, creates a diversified portfolio based on the date you intend to withdraw funds and gradually shifts to more conservative investments.

Work on paying down your debt

In the coming months, you may be concerned about repaying outstanding debts such as credit card bills, utilities or student loans. If you lose your job, you may have to forgo paying one or more of these bills, so it’s critical to know which ones you must pay.

After all, if you lose your job, you might not be able to pay all of your bills on time or in full every month. And this will have an immediate effect on your credit scores.

Typically, it is critical to do everything possible to keep your credit scores intact, but this may not be possible during a recession. As a result, you should prioritize how you pay your bills so that your available cash can cover as many debts as possible.

Remember, if you’re struggling to make your minimum monthly payments and don’t see a way out, it might be time to look into debt relief options. Debt consolidation enables consumers to replace their unsecured debts with a new affordable monthly payment plan. This debt relief option aims not only to consolidate debt into a single payment but also to replace high-interest debts with a lower-interest loan or line of credit, lowering overall costs and potentially accelerating repayment.

A family poses together on June 1, 2021 at Homestead Air Reserve Base, Florida. Dozens of family members, base leadership and friends gathered to greet the returning Airmen of the 482nd Fighter Wing when they returned home from their deployment to Southwest Asia. (U.S. Air Force photo by Tech Sgt. Allissa Landgraff)

Don’t make hasty or expensive decisions with your money

Now is not the time to throw your money into the unknown or take risks you haven’t thought through. It is especially true for any financial decision that will tie up much of your cash flow, limit your flexibility, or set a very high fixed cost in your budget.

If you can put off making big financial decisions that could put you in the wrong spot, you should. In the meantime, you can work on saving money and investing money to build up your assets.

That puts you in a better financial position in the long run, no matter what happens to the economy in the short term. It may also make it easier for you and your budget to get through tough economic times by making you and your budget more flexible and adaptable.

In the end, one of the best ways to protect your money from a recession is to keep things in perspective. Don’t make a short-term decision about something that should be a long-term play. Recessions are also short-term. Whether or not there will be a recession soon, it’s important to keep an eye on the big picture and be prepared for whatever comes our way.

The Bottom Line

Even though a recession can be a scary time, the best thing you can do to get ready is to take steps now. Rapid-fire news stories about higher prices for gas and food or talk of a possible world war are scary. But don’t trade based on the news. Building long-term financial security takes a steady hand and a cool head. You can find reliable information about things you need to know about money online, which can help you stay on top of your finances in these challenging times. Now more than ever, it’s important to learn about money to feel good about where you are with it, no matter what comes next.

Author bio: Lyle Solomon is a licensed attorney in California. He has been affiliated with the law firms in California, Nevada, and Arizona since 1991. As the principal attorney of Oak View Law Group, he gives advice and writes articles to help people solve their debt problems. You can connect with him at Linkedin or tweet him at @lyle_solomon