Even with financial analysts broadcasting their predictions for the future, a recession may come without a knock on the door. However, you can use past records to identify a pattern in the timeline of recessions. According to economic recessions of the past, the US is expected to experience a recession after every three years.
Ever since the Great Recession ended a decade ago in 2009, people have been expecting a recession to hit anytime. This is why it’s best to take preparatory measures.
With that thought in mind, let’s move forward to the next step: how to prepare for a recession.
1. Pay Your Debts
The best way to begin preparing is by paying down all your debt. It’s better that you get the high-interest dues cleared first. Now is the time to get done with this because during a recession, past debts can become additional baggage.
With that said, you don’t have to pay off all your debts right away. All you need is a timeline and the commitment to follow it through.
2. Collect Your Savings
Just how you gather all the grains before winter comes, you need to collect all your savings and build them up until a recession hits. This will be your best shelter during tough times because you never know how long a recession will last. Be sure to read 10 Best Ways to Save Money.
It’s advised to have enough savings to last you at least 6 months. If push comes to shove, you can even be laid off during a recessionary downsizing. Make sure your savings will be enough to keep you and your dependants afloat.
3. Adjust your Portfolio Investments
Investment advisors suggest investors to secure their funds in portfolio investments primarily because of the risk of recessions. During a recession you can’t tell when an asset market will improve, so it’s impossible to make informed decisions.
This is why it’s better to not bet all your money against one security because it might fail you and take all your money down with it. For that, it’s important that you calculate your risk tolerance.
Avoid acting on knee-jerk impulses when preparing for a recession. Investing in companies with a promising record is a good idea to begin with. Need more investment tips?: Investment Tips: Smart Ways To Make Your Money Grow
4. Cut Down Your Expenses
You might have been earning above and beyond your financial needs. But you may not be as fortunate during times of recession. It’s best to start saving and stop splurging.
It might be hard to move a notch down from your current standard of living but the change wouldn’t be drastic if you move slowly.
A good way to start is by paying off all loans and avoiding unnecessary luxuries. And most of all keep your credit card spending from going into debt.