Economic Recession Survival Guide: How to Protect Your Finances in Tough Times
Even the simple word “recession” is enough to send chills down some people’s spines. Indeed, it can be an extremely frightening event. Yet, you can successfully avoid an economic recession if you keep your money protected and yourself emotionally ready.
Let’s learn what a recession is and how to prepare your finances for this cultural collapse.
Recession – Normal Business Occurrence
You’ve probably heard that the recession is close every year. Be it the pandemic or wars, you’re being warned about financial declines. Indeed, some recessions don’t have to be huge to earn their name. Per the National Bureau of Economic Research, any big decline in general economic activity happens longer than a few months.
An economic recession is usually based on price fluctuations, consumer spending, and unemployment rates. Nowadays, economists are predicting an upcoming recession yet again.
In reality, you might’ve already gone through a few recessions. Depending on age, some readers might have faced the Great Recession (2007-2009). And as we already mentioned, the Coronavirus pandemic recession of April 2020. While these recessions are normal for the business and the economy, they can be terrifying to the usual consumer. So, preparing yourself for the hardships of any recession is essential.
Preparing Your Finances For a Recession
Here are a few helpful tips to prepare you for a possible economic downturn.
1. Check your budget
The first thing you need to do is check how well your budget plan is performing. Since the budget is one of the pillars of a stable income and financial state, you must keep a close eye on it. But what exactly should you check?
Make sure to rearrange and update essential expenses. Look at your list and highlight what you can’t go on without. That includes rent, bills, internet connection, food, transportation, etc. Don’t forget about repaying your debt if you have any! Now, see if there’s a possibility to cut back on some of those expenses. Downsizing them could allow you to save more.
That said, personal savings should be your priority when preparing for a recession. Having a great emergency savings fund can prevent going into debt. Be it a broken car or losing your job, this fund will help you stay afloat. Ideally, the amount there should equal at least four months of expenses.
2. Seek additional income
Even if you have a full-time income, a recession could be unstable enough for you to lose your job. So, having additional occupations would be an excellent idea for resilience during hard times. While it’s still possible, add those funds to your savings account. Then, use it to pay for basic expenses.
Even a little bit of money will push you through, so consider adding smaller projects to your routine. These can be:
a. Looking for passive income apps for relatively easy opportunities.
b. Freelance projects based on your work experience.
c. Handmade products.
d. Online services.
e. Affiliate marketing.
f. Self-developed games and programs.
h. Social media management.
i. And more.
3. Store your money safely
When it comes to recession, having cash saved up is not the best idea. While it seems the most stable, these stacks can lose their worth and won’t add anything with time. Instead, take an active approach to storing your money.
a. Savings account. There are various savings accounts out there, but they all earn interest. Depending on the amount of money, you will reach more or less. The best accounts offer the highest annual return.
b. Money market account. These accounts are similar to savings ones, yet they have the features of checking accounts. A huge advantage is that you can withdraw the money at any time.
c. A certificate of deposit (CD). CDs are unique bank accounts that have a high return. At the same time, your money will be stuck there for a certain amount of time. You won’t be able to withdraw the funds until the end of the CD term without a penalty.
d. Stocks. Stocks are not as stable, but they can give you a lot of profit. Moreover, you can buy them at a discount during a recession. Then, the price will grow, and so will your net worth.
4. Stick to your financial plan
When times are tough, it’s easy to lose confidence in the future. You might feel lost and scared, thus more prone to overspending and going into debt. To prevent that, check if your financial plan is still up to date. Or better yet, create a fresh one!
Think about all possible scenarios in your life and put them together one by one. If the economic situation changes tremendously, you’ve already thought about it and considered your next moves. Stick to your plan and stay calm.
Recession can be extremely discouraging in terms of finances and mental health. Yet, it’s important to remember that it will never last forever. You'll be safe and sound if you pay close attention to your budget and stick to your financial plan. Looking for additional income and storing your money safely will boost your net worth, too.