In this article, I’ll share with you how to prepare for a recession. A recession is one of the worst kinds of words economists and individuals want to hear. However, it is also a fact that recessions can occur in many different countries and at different times. So rather than panic and be clueless about this situation, We can prepare and can easily defeat the recession. Think of this as a cycle of good and bad economics. If you are prepared to deal with a recession, you won’t have to cut down on your long-term financial goals.
What is a Recession?
Let’s try to understand what recession is exactly. It is nothing but an economic decline of a region or country for a period of up to 3.5 years. This is the bookish definition of recession; let me tell you what it means to the average folks. In a recession, unemployment rises, different industries start to decline, like construction, trade. A recession is typically cyclic, which means it will come no matter how good your economy is doing today. Yes. Government intervention and other assistance could reduce the severity of the recession. But recession certainly can’t be avoided.
Depression vs Recession
Depression is something that does not occur as frequently as a recession. But when it does occur, It stays for a very long time. It lasted roughly ten years. Of course, It is one of the most devastating economic downturns any country can go through. In a recession, the economy is usually slow, and the repercussions are felt throughout the country.
But in depression, the effects are global or multi-continental. During the depression, economic activities not only slow down. But they pause and fall back negatively. A great depression can put a country a decade in the past with its adverse effects.
Find Out How To Prepare For And Survive A Recession?
1) Re-examine Your Budget
You must be following the news and looking at the stock market crash. And you know a recession is inevitable. In this instance, it is important to immediately reevaluate and revise your budget. Start with cutting down on expenses related to luxury, Restaurant, Movie, Different subscriptions, etc. Cut down on other non-luxury expenses as well. Economists suggest that you should reevaluate your budget and make it 50% shorter. For, i.e., If your monthly budget was $5000, then cut that to $2500. Saving money through a budget is the best way to feel secure. You can use excel and a different budget template to reassess your monthly budget.
2) Increase Emergency Fund
First things, If you don’t have an emergency fund, create one right now. Even if you lose your job, an emergency fund can help you keep your finances in good shape. Start by investing 20% of your monthly salary in your emergency fund. The money should be liquid so it can be withdrawn in a matter of hours. If you already have been investing in your emergency fund, double the amount when you think a recession is coming. Maintain at least enough funds to sustain for the next six months if you can stretch the fun to 1 year. A recession typically starts to fade away after one year.
3) Invest in Solid assets
It’s unwise to stop investment even when in recession. But in difficult times, when you don’t know where the market is heading. Go for solid assets, i.e. Gold and government bonds. If you acquire these assets, you don’t have to worry if your country goes to war or if a nuclear apocalypse occurs; solid assets are one of the safest in the world. Buy as many solid assets as you can during the recession because the price for those will dip, But remember that these assets will never lose their value. Think of these assets as a shield for any uncertainties ever possible.
4) Get rid of high-interest loans.
Okay, Once you realize that recession is about to hit, Clear all your high-interest loans. During a recession, banks are under great pressure because many people start defaulting on their loans. And they get vigilant and start to panic. Now is the best time to have your loans cleared. Negotiate with your banks that you won’t default on the payments, But the bank must lower your interest for a specific duration. And in many cases, they will agree to your request Because banks are under great stress to get as much liquidity as possible.
5) Don’t stop investing.
While I have suggested, you invest in solid assets first. This does not mean that you should not invest in the mainstream market. During recessions, stocks dip in large numbers; You can buy these devalued stocks and hold them till the market is back on track. Billions were made by a handful of individuals during the recession. When in a recession, think only of two words: invest and save. If you follow these steps, you will not only survive the recession, but you will come stronger.
6) Improve Your Skills
When the economy is in decline, it is not unusual to be laid off. But someone with very high skills rarely gets laid during an economic downturn. This means even when things are not working out for your company; They will hold onto you Because your skills are very useful to them in the long term. This is why you should invest greatly in your skills and outperform always to make sure that your job position is secure in the highs and lows.
I hope this article helps you understand how to prepare and survive a recession.