Ten Ways You Can Financially Prepare for a Recession

A recession is a massive fall in economic activities over a given period. A recession can be caused by several factors, such as stagnated business growth, high unemployment in a financial setting, an increase in inflation levels, global conflicts, and the negative disruption of businesses caused by the covid-19 pandemic. One must be prepared for these challenging times due to the harsh living conditions accompanying a recession. Being prepared means ensuring that the individual finances are put to cover for uncertainty. You should thus ensure that you maintain a positive balance between your income and expenditures. In this post, we will explore ten ways to prepare for recessions.

1. Pay Down Debts

Ensuring that the down debts are paid can sometimes be extremely difficult, especially when the earnings are insufficient to cater to all expenses. However, by ensuring that all of your down debts are paid, one makes a huge step to secure their financial future. This can be achieved by paying small debts at a time and channelling any excess expense money into debt payments. One must ensure that your credit card is consolidated into a lower annual rate.

2. Identify Your Financial Priorities

Setting financial priorities is vital in ensuring that one secures financial stability. In this line, one will only spend on materials that are of absolute necessity first. Food and rent should be prioritized, while unnecessary items should be eliminated from the budget.

3. Beef up your emergency fund

It is crucial to ensure that the savings for emergency expenses are boosted to cover as long a period as possible. Under current economic situations, keeping up a savings account can offer unexpected financial support for at least six months is essential.

4. Stay invested

Staying vested means controlling emotions and keeping a mission of staying in a favourable financial position for longer. This is because it is impossible to make economic steps, and decisions of your judgment are clouded by fear or panic.

5. Reduce expenses

One must look at what they spend the most and take the initiative to reduce these expenses. For example, one might consider moving into a cheaper apartment if the level of income drops.

6. Diversify Investments

Investment diversification means investing in different financial revenue streams with different risk and return levels. This mitigates the risk in case a recession is caused by a fall in one investment. Additional investments will thus ensure that an individual maintains financial stability even in the most challenging economic conditions.

7. Plan for the Long Term

It is essential to make an investment decision to have profits in the long term. Therefore, investment decisions should go beyond the recession period, and one should void the stock sale at that point in time since it will only lead to financial losses.

8. Invest In Yourself

Investing in yourself means building a stable career and professional reputation. This factor will compensate one for a financial loss during a recession. Some ways in which an individual can invest in themselves include advancing educational qualifications and building a brand.

9. Explore options to increase earnings

If the financial income does not meet all the necessary expenses, one can always look into options that will increase revenue and revenue streams. These include freelancing, creating passive income, acquiring new skills, or negotiating with the employer for a salary increase.

10. Adjusting portfolio for Retirement

When one edges closer to Retirement, they need to hire the services of a financial advisor who will be tasked with adjusting the retirement portfolio. This will ensure that the retired individual does not lose a large proportion of their money income and that their growth is not stagnated.

If all the measures are taken, an individual will be best suited to deal with any financial predicament. One will find that their savings can push them through prolonged periods of financial difficulties.

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The content of this blog is intended to provide a general guide to the subject matter. Professional advice should be sought about your specific circumstances.

By: Kamal Gawri, CPA, CA