5 Financial Preparation Tips for Surviving a Recession
After years of stock-market growth, 2022 has a seen a huge economic downturn and experts are forecasting that we may be on the brink of a recession. During these times of uncertainty, it’s difficult territory to know how to navigate this market and manage finances accordingly. Whether or not a recession is on the horizon, we’ve outlined ‘5 Financial Preparation Tips for Surviving a Recession,’ to get you started down the right path.
Pay Down Your Debt: Being encumbered by debt during a recession is a huge burden to carry, especially during a stressful time when money can be tight. Don’t land yourself in this situation, and instead take stock of all you have owed, get your finances in order and execute a steady and solid plan to pay-off any outstanding balances as soon as possible, especially those debt accounts with higher interest.
Contribute Regularly to an Emergency Fund: Aim to set a minimum of at least 20 percent of your income toward emergency savings every month. In the case of a recession you never want to rely on your credit as a crutch. So long as you are actively working on contributing more money to an emergency fund, you will have a comfortable nest egg of savings to rely on during hard-times.
Downsize and Budget: While there is no shame in treating ourselves every once in a while – downsizing your lifestyle to ‘save more’ is the easiest way to prepare yourself for a potential recession. This may mean living more ‘frugally’ than you may be used to, but trust that if a recession does hit, you’ll be patting yourself on the back for your ability to stick to your budget. Remember, living frugally doesn’t have to mean being bored all the time. Instead, do a deep-dive into your daily and monthly expenses, and budget wisely to include all the things you need and that bring you joy, while also trimming down on extra unnecessary expenses. Some examples include, getting rid of any memberships you aren’t making the most out of, cutting the cable, finding ways to scale back your grocery spending or relying on just one ‘family’ vehicle instead of two. By setting out a budget for yourself and making a few simple changes to your lifestyle, you can still enjoy what you love and proudly say you’re working hard to contribute more money toward your emergency fund.
Improve Your Skillset: In a recession, when your sole source of income can be jeopardized by lay-offs, it’s always a good idea to have a diversified skillset that you can potentially cash-in on. A wider skillset will make it easier for you to find a second job if need be, and can also provide an additional source of income to fall back on. However, because jobs can be scarce in a recession, you can also look into other sources of secondary income that are more on ‘your terms,’ such as freelancing your skills, selling your unique services, or renting out a room or space in your home to a tenant. Lessen your risk of falling victim to the pitfalls of a recession by honing your skills now and having more than one income to rely on.
Diversify Your Investments: Lastly, talk to a financial advisor about diversifying your investments. The stock market is particularly volatile, especially in the case of an economic downturn. Don’t invest all your money in one sole type of investment — this leaves you vulnerable to a financial disaster in a recession. Instead, allocate your assets among different investment streams in order to diversify your investment portfolio. This way if the market drops, your losses won’t hit as hard. To help you further long, a financial advisor can help you determine the best course of action for ways to balance your portfolio.