We don’t want a recession to occur, but with how things are going at the moment, we can’t just shrug off the possibility.
For those you who don’t know, a recession is just a big word to describe the significant decline in economic activity that goes on for a few months.
The effects of recession can lead to unemployment, fall in income and businesses closing down.
Now, I’m not trying to scare you. The point is to prepare for the worst case scenario.
There are ways to financially prepare for a (possible) recession. It would be best to start now to minimise the effect an economic recession can have on the household income.
1. Pay off debt
AND DON’T ACQUIRE ANY MORE DEBT!
I experienced months when I paid off debt that I have had pending for months and that short moment of not needing to pay anything really helped me sleep a lot better. But debt is just soooooo attractive when wrapped prettily with good deals. I understand. But if the economy falters, having debt while thinking of everything else is going to be soooo stressful.
It’s important to pay off high-cost debt first so you can gauge where you are at financially. By paying off outstanding debts, you can take one worry off of your mind and move forward with the necessary steps to take. Pay off your debts with the high-interest rate ones first and then turn to other loans. In a worst case scenario of getting laid off, it’s one less thing to worry about.
2. Re-evaluate your priorities
It’s time to assess your priorities and making changes to your goals. You might be planning to buy a new car this year, starting a business or planning to go on a luxurious vacation you always dreamed of for so long. Perhaps, some of your goals can be put off a little later. Prioritise your emergency fund, a cash reserve and pay off debt first. Be cautious about your spending as well as your investments. It pays to be financially conservative.
3. Spend less
Assess spending habits and determine the areas where to eliminate or minimise. It’s time to look for cheaper alternatives to products and services. There’s also an option to make our favourite foods and must have products at home. Get meat, fruits and vegetables where it’s cheaper, compare insurance policies to get the best deal, unplug appliances when not needed and hide that credit card!
4. Set a budget and live within your means
At SAHM, we always talk about budgeting and living frugally..but when things are going good, I do tend to suddenly spend a little more than I use to. I still lose track at times so I can definitely relate!
What’s great with already having the knowledge and experiencing it firsthand is that I know what works for me and my family.
Now, it’s important to set a budget and make sure to live with what we can afford. If you haven’t done that already, better start now! Commit to the budget for a week..then if it’s impossible to work on, make some changes, commit for a slightly larger budget – repeat until you create a budget that works for you.
Once you have decided on a budget and succeeded in committing to it, try again for a week, then a month, and then suddenly it gets easier to follow.
5. Do 2x 3x 4x better at work
When recession occurs, employers have no choice but let go some of its employees due to financial loss.
When deciding who goes and who stays, factors like skills, education and passion are in the criteria. Always do your best at work but now more than ever, do even better, so you can increase your chances of remaining employed. Do your job well and make sure to be a reliable team player. It’s no assurance but it’s worth the try.
6. Update your resume and get a side hustle
They always say don’t put your eggs in one basket so getting a side hustle makes sense. Update that resume and take on any job you can during your free time. Now is not the time to be picky. Work during weekends and build your resume.
Make sure to maintain a good track record with all your clients.
7. Learn a new skill or study
If you can’t get a side hustle, how about learning a new skill or studying to enhance your knowledge?
It will look good on your resume.
There are people who have succeeded even without finishing school, however, economists have always emphasised the importance of education. It was also noted that those with bachelor’s degree have a lower chance of being unemployed since it can also affect the company’s decision on who to let go during cutbacks.
8. Check on your credit score and boost it if you can
If you trace back and study the previous recessions, lenders have the tendency to only lend to the strongest borrowers. That means that if you don’t have a great credit score, you’re less likely to be approved when you apply for a loan. Make a habit of checking your credit file regularly, too so you can update your personal details, check for mistakes or issues that might affect your credit score.
Some of the ways to improve your credit score is to pay your bills on time and avoid maxing out your credit card. Learn more about your credit score here!
9. Recession drill
One of the most effective ways when preparing for something to happen is executing a drill. You know when fire or earthquake drills are executed right? They are done so people know what to do in case it happens. In the same happen, you can execute a recession drill in your household so in case the economy falters, you know what to do.
As I mentioned in number 4, it’ll be great to set a budget to commit to.
Make a list of things you need to spend on for the entire months starting from the most urgent such as bills, groceries and gas. Then, list other weekly/monthly expenses. From there identify which ones get to be included with the budget you just set and do a recession drill for a month.
The extra cash you have goes to your emergency fund.
Ideally, saving should be done way before the threat of recession rears its ugly head.
However, it is never too late to start.
Build up your cash reserves and continue to do so whether or not a recession happens. Make arrangements so you can spend less on gas, food and other expenses. Whatever extra money you get, put it in your savings. In case of a layoff, you can comfortably look for another job and still be able to fend for yourself for months.
Add up all your monthly expenses and multiply by 6. That’s the amount you should be able to save up to survive for 6 months in case you become unemployed. But don’t let the number pressure you. Start by saving up for a month or two then add more to your savings as you go.