Our economy is like us: it has its share of ups and downs. At times, it steadily grows and expands until it reaches a point of decline or recession. When this happens, our households become at risk of reduced income, unemployment, low trade activity or business closure. It is then essential that you take the necessary steps to recession-proof your finances to minimise the impact. These tips should help you stay in control.
1. Settle Debts
An economic downturn makes us all stressed out. And the last thing we want during that time is to have a mountain of obligations to pay off. So, start your recession-proof efforts by settling any outstanding balance. That way, even if you encounter income drops or job loss, unmanageable debts are the least of your worries.
Ideally, take care of those with high interest rates first, like credit card debt. That’s because these types significantly take a toll on your income and prevent you from saving. Once done, you can move on to car loans or mortgages, then do your best to avoid incurring new debt.
2. Reassess Investment Options
Is a new car or an expensive holiday trip at the top of your priorities? Perhaps, you need to reconsider and identify which goals are urgent and which ones can wait. For example, why not prioritise long-term investments instead, like the stock market, your retirement plan or a small start-up business?
These are likely to give you more financial security when the economy is in bad shape. Moreover, getting into smartly chosen recession-proof investments in multiple sectors will protect your entire portfolio from sliding downhill. Financial advisors can help us decide, too.
3. Control Unnecessary Expenses
Aside from your financial plans and investments, your expenditures and spending habits need attention as well. In times of a recession situation, your goal is to spend on essential bills. So, find the time to review your expenses and identify the ones you can lessen or eliminate.
Evaluating your energy, phone or broadband service providers is a good starting point. You may also have costly subscriptions that you don’t use or need. It’s probably best to stop them or sign up for a company with better offers. This list of ways to reduce household bills might be a big help.
4. Start Budgeting
Have you started on your family budget plan yet? If yes, then that’s perfect! Being able to live within your means will surely help make you recession-proof. But if you’re still thinking about it, I suggest picking up the pace and start budgeting now. After all, it’s a practice that takes time to become a habit.
Start by studying your income and expenses, then from there, set a monthly budget. Make some adjustments if needed until you find one that works for your household. And more importantly, do your best to commit to it and avoid overspending. Downloading budgeting apps can help you create a plan and stay on track as well.
5. Work Extra
A side hustle for additional income is another foolproof way to tide you over financially. With weekend work or an online business, your income stream or cash flow continues even if you lose one job due to a recession. The best part is there are income opportunities or side gig ideas that you can do at home.
Of course, working for extra cash is not an excuse to be less productive on your day or full-time job. While it is not always the case, doing your best at work increases your job security amid economic instability. So, stay productive and make the most of your free time.
6. Gain New Skills
Studying or learning a new skill may not directly add to your financial security. However, the training will put your time to good use plus make yourself more employable. Being multiskilled is one way to relay to employers that you are easy to train, flexible and open to changes.
Ideally, consider looking for lectures or workshops that will help you land a recession-proof job. Examples include those from the education, financial and information technology sectors. These also often offer remote job opportunities, so you can work anywhere and on your own time. Transit, grocery, health or senior care, courier, public safety and utility skills are excellent options, too.
7. Boost Emergency Fund
Saving your extra money is, of course, the best way to recession-proof your life. But aside from having an easy-access savings account, it will be good to put cash reserves for your emergency fund as well. You can start with this rule of thumb: multiply your monthly expenses by six.
This way, you have enough funds for six months to support yourself while looking for a new job. You can also use it to settle unexpected costs. If you already have six months’ worth of emergency savings, try aiming for 12 months. If this amount is not possible, don’t worry. What’s important is you get to set aside some for future use.
Unlike a brewing storm, a recession is something we cannot forecast. Also, it can last indefinitely. While this economic condition makes us uncomfortable, the good news is we can do something about our financial situation. Finding another source of income, making wise investments, bulking up our cash buffer and expanding our skillset will surely keep us stable and secure. And the best advice of all: let’s all begin doing them today!