There is a lot of talk about a possible recession and you want to prepare your finances now to be prepared when it comes. A recession is when a major economic decline may last for months or years. Our country has experienced several recessions throughout history, and there are characteristics we should consider. One sign of a possible recession is decreased consumer confidence and spending. Sudden stock market downturns may also signal recession. A rise in unemployment often means that a recession is coming or already here. Some businesses also shut down due to a decline in sales or revenue during recessions, leading to layoffs. Here is how to prepare for a recession and stay afloat financially.
Revise Your Budget
One way to prepare for a recession is to revise your budget. If you were told that layoffs are coming soon, now is the time to slash unnecessary items from your budget. These include subscriptions, dining out, designer clothing, extra groceries, and vacations. This is the time to spend money mainly on your most important expenses such as your rent, utilities, insurance, and your car loan.
Increase Your Emergency Savings
You’ll need emergency savings during a recession because if you lose your job or if your business experiences a decline in revenue, these savings can keep you from having to take on a lot of debt to fund emergencies. If you’re still employed, increase your contributions to your emergency fund. Automate a portion of your check to your savings account every pay period.
Pay Down Debts
Debt chokes your finances during recessions and you should reduce some of it now so you won’t be too overwhelmed by creditors during a recession. Get copies of your credit report from AnnualCreditReport.com and then dispute any errors you see in writing. Contact your creditors and work out a flexible payment plan that suits your budget.
Make Wise Investments
Never invest in things you don’t understand because when you do, your portfolio could suffer during an economic downturn. Some investments are better than others during recessions. If you’re buying stocks, consider healthcare stocks, consumer staples stocks, utility stocks, and company stocks that have a long and consistent history of dividend payouts such as Coca-Cola and Johnson and Johnson. During stock market crashes, many people sell a lot of their stocks out of fear. But stock market crashes are great if you have extra cash to invest. This is because many stocks decrease in price and you get to buy them at discounted prices before the market rises again.
Forget About Big Purchases for Now
When a recession comes, this is not the best time for major purchases that will cause you to go into debt to buy them. Debt chokes your financial stability and during a recession, you want to minimize debts, not increase them. Use this time to save money towards big purchases such as a home, car, or new appliances.
Upskill or Reskill For Career Advancement
If your employer laid you off recently, you can spend your free time upskilling or reskilling to stay current in your new career or enter a new industry. This is a great way to prepare for a recession because if you have a new skill set and certifications or licenses, it will help you bounce back as you reenter the workforce. Research your industry’s latest trends and revise your resume.
You don’t always need to attend a four-year college to obtain the new skills you need. You can take online courses through educational websites such as Coursera and Udemy. Skillshare is another neat website that offers diverse classes to teach you career-advancing skills such as digital marketing, artificial intelligence, and copywriting.
Attend in-person and virtual industry events where you can listen to industry leaders give solid career advice and answer your questions. Reach out to former coworkers and inquire about any positions available at their new jobs.
Start a Recession-Proof Business
Recessions are good for future entrepreneurs if you start a recession-proof business. Some of these businesses are:
- Childcare services
- Senior care services
- Housecleaning businesses
- Auto mechanic business
- Supermarkets
- Tutoring
- Resume writing services
- Food service businesses
Build a Long-Term Pantry
Everyone should have a well-stocked pantry of essential food staples to cook with to reduce the need for going to the store too frequently. Many blogs have pantry checklists you can use as inspiration, and this saves you money.
Consider a Side Hustle
If you’re currently employed but you experienced a reduction of pay or hours, consider a side hustle. Your side hustle doesn’t have to be expensive because there are many affordable side hustle ideas to choose from that won’t eat up your schedule. Use your side hustle earnings to pay household bills, debts, or even to add to your investment accounts.
If You’re an Entrepreneur, Slash Unnecessary Expenses
Recessions hurt businesses too, and sometimes you’ll need to slash unnecessary expenses to survive this tough time. Maybe you can cut out traditional advertising and focus more on digital marketing strategies such as email marketing and social media marketing. Some businesses institute hiring freezes for a while during recessions.
Rent Out a Room in Your Home To Help With Mortgage Payments
If you’re struggling to pay your mortgage, rent out one or two rooms to a relative or close friends. The rent they pay you monthly can assist with mortgage payments if your current income has decreased because of a recession. Get the contract with your loved one in writing and notarize it with a witness at a notary public’s office.
Find a Recession-Proof Job
If you’re currently unemployed, seek out a recession-proof career. Healthcare jobs are recession-proof since there’s always a need for healthcare professionals. Education is another option since teachers are always needed and a lot of teachers are leaving the profession. Other recession-proof jobs are law enforcement, utilities, and government jobs.
Look Into Debt Consolidation
If you have multiple debts and it’s a recession, look into debt consolidation. Debt consolidation is when you bundle your loans into one new loan with a lower interest rate. Debt consolidation loans simplify the debt payment process but this method isn’t for everyone. Some of these loans come with high fees and it may take longer to repay the loan.
With these strategies, you can prepare for a recession with confidence and navigate tough financial times without falling apart. Instead, you can thrive financially and provide for your family well.
