How to Financially Prepare for The Next Recession

Written by: April Lunar
10/01/2019

economy-challenges

What is happening with the economy? This is a question even the sharpest economist in the world may not have an answer. Even though the economy has sprouted from the ashes of disaster since 2009, you must understand that it may not tick upward forever.

Sadly, that is not how the economy functions. According to Stacy Johnson, founder of Money Talks News, the issue is not if the recession will happen it’s about when the next one will occur. As an individual, are you financially prepared to withstand the roller-coaster of the economy? If your answer is NO, then capitalize on the following recession survival tips.

What Is A Recession?
As stated by the National Bureau of Economic Research (NBER), a recession is a considerable decline in economic activities that affect the entire economy, lasting for several months. It is usually visible in industrial production, real income, and real GDP. A recession starts typically when the economy is at the peak of activity and comes to an end when it is at its trough.

Recession is caused by imbalances that are in in the economy, which build up and end requiring some correction. Also, factors that negatively affect industrial profitability to cause job reductions can cause a recession. When consumers’ purchasing power reduces, unemployment rises, corporate stocks and earnings are economically pressured, and this can negatively affect the economy.

So, how do you prepare for a recession? Here is what you need to do:

Build up emergency savings
This is perhaps the first step you should take. What you do not understand, however, is how much money you should save. There is no definite answer to this factor because people are different, but here are some basic guidelines you can follow:

Make sure you have expenses in savings for at least six months, meaning you should have sufficient cash to cover your necessities such as personal care and food, housing and utilities, and other financial expenditures such as insurance and auto loan payments.

You can start now to reduce your expenditure such as forgoing eating out, reducing energy use and so on. You will be able to save money on transportation if you do not commute, or if you do not find yourself with a job. The good thing with recurring costs is that they are fixed, and so you can adjust them. Also, expenses like health insurance increase when you do not have a job because you no longer have your employer partially catering for the cost.

Use The Company Health Plan While it is Available
When the recession hits, retrenchment is a common thing, and if you have expensive medical treatments you have been ignoring, this is the time to take advantage of your company’s health plan. If you have a medical procedure, do it now before it is too late.

Live Within Your Means
Experts advise that you should not spend more than 30% of your net income on unnecessary things. You must create a monthly budget to make sure you are living within your means. You must eat to live, pay your auto insurance, pay for utilities and groceries too- all these expenses are essential. However, cable, vacations, and dining out could be regarded as a lifestyle or luxury expense, which is referred to as discretionary spending.

Establish a Side Hustle So that You are Safe in Case of a Layoff
More and more people are starting to see the need for side hustles. According to study research conducted by the Harvard Business School Online, 54 percent of people claimed they would consider a side hustle.

The best thing about plan B is that it gives you some peace of mind because you know no matter what happens, you at least have some income stream. For instance, you can opt to drive for a rideshare service during your spare time. Some people do digital marketing consulting on the weekends or after office hours. Side hustles can help you pull through the recession without a lot of stress, and who knows, it could even become your primary source of income.

Invest in Safety-Net Expenses
During a recession, people tend to stay at home and park their cars unattended. For this reason, vehicle and appliance breakdowns are prone to occur. Most people tend to cut when the money is low or overlook safety-net expenses. However, vehicle repair services, cell phone insurance and home warranties are great examples of safety-net costs.

Considering investing in pay-as-you-go expenses or affordable month-to-month safety-net expenses to prevent spending your money on unforeseen significant repair costs. Subscribing to these types of coverage can save you a lot of cash in the long run, especially on replacement or significant repairs.

Have a Look at Your Main Assets, Particularly Real Estate
If you want to down-size your home in the next couple of years or sell one of your properties, it is wise if you do it as soon as possible. It is not mainly because of the money you will get, but significant investments such as properties are easy to dispose of when the economy is excellent than in recessions. In fact, real estate markets perform extremely worse during the recession; they literally vanish.

Optimize Your Professional Value
One of the most significant challenges that many people have faced since the 2009 recession has been finding the same level of income and employment. Apart from the loss of opportunities, many organisations downsized or went under, but most companies are now used to doing a lot of work with fewer employees. Companies have also embraced automation and technology to cut on labor requirements.

On the same nerve, industry and disciplines that are growing faster need professionals with training and skills that people may not have acquired or learnt in school. Also, the type of job that you do now may not be as vital or essential as it was a few years ago. For this reason, you might want to take yourself back to the drawing board and figure how you can make yourself more valuable.


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How to Financially Prepare for The Next Recession

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