By: Admin Super
A recession is a period when the economy of a country experiences negative growth. Most consumers will have less disposable income, which can translate into a decrease in overall sales for many companies. Recent research shows a 70% chance of a recession in 2023. As a result, businesses will likely cut back on hiring and expansion and even resort to layoffs to trim their budgets as much as possible.
But it’s not the first time in history. There have been many economic crises, each with its causes and effects. People have adapted to these changes through innovation and resilience, which have profoundly shaped modern economies. In other words, we can always find ways to take our finances into our own hands, even during difficult times.
Here, we’ll explore how you can make your finances recession-proof.
One of the things to do in preparation for a financial crisis is to assess your finances’ vulnerability. Doing so will give you a better idea of what steps need to be taken for your finances to survive and thrive during challenging times.
In assessing your finances, look at your income and expenses. If you’re in a position to, consider cutting back on spending to save money. In the event of a recession, it’s crucial to have a financial safety net that can help you ride out any economic storms. There are many ways to do this. For example:
Additionally, see how much debt you have. If possible, pay off high-interest credit cards or loans before they become even more expensive by transferring balances from low-rate cards or taking advantage of 0% introductory offers.
You may also find it beneficial to refinance any loans with lower interest rates than those currently being charged by banks today. Examples of these are credit products from online lenders or installment loans like Possible.
A financial plan will help keep stress levels down during tough economic times. It’ll ensure that bases are covered and that you can make ends meet before and during any problems, such as job loss.
A sound financial plan has a good budget. Make sure you have enough money to cover your expenses and any unexpected expenses during the year. It includes having an emergency fund set aside for those situations where life throws us a curveball, like losing a job.
More importantly, know your priorities. If there’s anything left over after putting money away into savings accounts or paying off debt, use this surplus as extra spending money, but only if it won’t affect any other part of your financial plan.
If you’re already working full-time, ask for an extra shift or a promotion. If that’s not possible, consider getting a side gig. The extra cash will help pay off debt faster and give you some breathing room during tough times. If you’re unemployed or underemployed, consider looking for extra work as soon as possible.
If all else fails, take whatever steps to earn more. For example, you may sell something valuable on eBay, rent out an extra room in your house through Airbnb, and take care of elderly neighbors who need assistance with daily tasks like cooking meals or laundry.
When times are good, putting all of your eggs in one basket can be tempting. However, when things go south, those eggs may break, leaving you scrambling for more. Hence, diversification matters.
To diversify, spread out your holdings. For example, invest in different mutual funds, open new lines of credit with different banks, or explore alternative investments like real estate or commodities such as gold coins and bars. By doing so, if one investment goes down, others can help pick up some slack by going up instead.
Also, even if things get terrible for some reason and everything tanks at once (which happens sometimes), at least some part of your portfolio won’t be devastated by what happened elsewhere.
Diversifying skills is another way to protect yourself against an economic downturn. The more skills a person has under their belt, the better off they’ll be during tough times. It’s especially true if those skills are transferable between industries or fields. Plus, diversifying your skills can help you have multiple income streams.
In addition to learning new skills, it’s crucial to identify and develop the skills you already have and then do more of them. One way to do so is to monetize them. For example, if you’re an artist, start selling your artwork online or at local craft fairs. Another, if you’re an accountant, consider working as a consultant for small businesses during the recession.
If you don’t have skills that can be monetized, make use of your forte to help others and earn money in turn. For example, arrange classes on how to manage finances better, advise over the phone, write articles about how people can save money on groceries by using coupons or buying in bulk or organize community events where people can learn from each other, like teaching yoga classes.
With the economy in constant flux, it’s more important than ever to be prepared for the next financial crisis. It’s not enough to save or invest your money. Take the proper steps today so your finances will be ready for any economic conditions in the future.