The question has never been more appropriate since the coronavirus turned the world on its head in 2020. But the motto of the Boys' Scouts remains ever relevant: Be Prepared
But, how do you prepare for a recession? And with a most unstable world blighted by conflict, pandemics, and inflation, does anyone know how to prepare for one?
The good news is you can be prepared for a recession. The world surely hasn't left us without warnings. So you have no excuse to be caught napping. Naturally, humans have always been prepared for the inevitable. A crisis shows up one way or the other through job loss, an accident, an emergency, or an illness. But when the economy spirals downwards and refuses to pick up after the downturn, many, who did not prepare for it, lose livelihoods, and many never recover afterward.
Here are steps to take to stay above the waters if the economy doesn't improve.
Debt
In preparing for recession, one thing you should avoid is debts. Debts may be necessary for specific conditions and make business sense, but they will eat up into your cash at hand if you have lots of tax burdens. The best way to prepare for a harsh economy is to ensure that card debt is eliminated. Even if you have a lot of money now, you won't know how many debts are eating into your finances until you clear them. Nothing prevents adequate savings like debts, so attempt to remove them.
Increase savings
This is different from emergency funds, which we'll discuss later. Even if you're paying off debt, attempt to increase your savings. Savings make you more disciplined and give you the ability to absorb shocks that the unstable economy may throw at you.
Budget
Budgeting keeps you disciplined. You know how much you spend on essentials and non-essentials. It also makes your spending transparent. While preparing for a recession, always make a budget before you spend. Several digital and manual budgeting tools can keep your finances in check. Budgeting also allows you to cut down on non-essentials and increases your chances of saving.
Diversify
Nothing says you're unprepared for recession like having only one income stream. Diversifying your sources of income is not only smart, but is an easy way to help you pay off debts, budget wisely, and increase savings. We know how difficult it may be for a person with only one stream of earnings to pay off debts while saving. The challenge of growing streams of income is finding a job that doesn't eat into the time of your regular job. Well, several freelance opportunities can make use of your skills. Look for something you are more passionate about. If you're not in one of the recession-proof jobs like healthcare, make it a priority to look for part-time employment.
Cut Down on Excesses
Preparing for recession is an emergency. This means you must cut down on anything that is not essential. While preparing your budget, be sure to reduce your spending on luxury goods. With time, you'll be used to living a disciplined life.
Have Emergency Funds
Setting aside a substantial amount for an emergency is time-tested to prepare for a recession. This may not be easy if you depend on only one means of income. However, as much as you can, set aside some amount for emergencies.
Long-term investments
During a recession, investments drop in value. Many people, driven by impulse, sell off assets at that time. Get in for the long haul. Invest for the future. Nothing lasts forever. Sooner or later, things would improve. One smart way to invest is to do so during a recession!
There's no one simple way of financially preparing for a recession. Cutting down on excesses and preparing for rough eventualities may be an excellent way to start. But with discipline, you can emerge even stronger after an economic crash!
FOR MORE INFORMATION ON HOW KLSM CPA FIRM, PLLC. CAN BEST HELP YOU WITH YOUR TAX FILING NEEDS, PLEASE CLICK THE BLUE TAB ON THIS PAGE.
THANKS FOR VISITING.
