A recession occurs when a region’s economy experiences a decline in economic activity over six months (two successive quarters). This can be seen through gross domestic product (GDP), rising levels of unemployment, falling retail sales, and contracting measures of income and manufacturing for an extended period of time.
Recessions can be unpleasant and cause worry; they may bring hardship to individuals who lose their jobs, homes, or businesses. That being said, it’s important to understand that recessions are a natural, unavoidable stage of the economic cycle. In fact, a recession occurs every 6 years on average.
It’s important not to panic about the thought of a recession, no matter how distressing it may be. Properly preparing yourself will help you feel more at ease and protect your assets from heavy loss.
Review and Reduce Your Expenses
It’s important to review your finances in the wake of a recession. This will allow you to identify your needs and financial health. Understand how much income you bring in each month, and what your essential expenses are. Essential spending includes necessities: rent, groceries, medications, car etc.
Once you budget your finances, you’ll have a better understanding of where your money needs to go, and where you can trim additional, non-essential spending. Think about subscriptions that you’re not really using; sometimes we forget that we’re even subscribing to certain things, which can add on to monthly expenses quite a lot. Reviewing and budgeting your finances will help you avoid taking on any excess debt, pay off debt, and build your savings so that you can be in a healthy financial position.
Contribute To Or Start Your Emergency Fund
You never know what emergencies might occur, so it’s a good idea to always be prepared. It’s important to set aside money for emergencies like a job loss, medical bills, vehicle repairs and more.
Saving at least 3 months of net pay is good for emergencies, and will set you up to successfully navigate uncertainties. Consider adding to your budget a percentage to be contributed to emergency funds.
While it might be a difficult decision to pull from your emergency savings, it’s important to understand that this is a natural part of our finances. Emergency savings are for emergencies and are meant to be used if necessary.
Pay Off Debts That Have The Highest Interest Rates
If you have any debt, focus on paying off the ones with the highest interest rates. When your income is flowing and economic conditions are stable, you will have an easier time doing this. When the economy declines, it might make it much harder for you to be able to pay your debts, so it’s important to do this while you can.
Focusing on paying off debt with the highest interest rates is crucial as you will save significantly on interest payments; the interest won’t have time to compound. This will help save you money and allow you to redirect your funds to other financial obligations.
Think About Your Career Options
It’s a good idea to be proactive and not reactive, and to take full control of what is in your control. You can do this by ensuring your LinkedIn profile is up to date, preparing your resume, and growing your professional network. Developing your professional skills and experiences are also important in maintaining your competence. Even certain industries or companies in recessions thrive, which can allow you new career opportunities if necessary.
Expand Your Income Sources
Find new creative ways to make additional income. Diversifying your income will add a level of stability to your finances. If one stream of income fails, it ensures that you will always have backup sources, something to fallback on.
Having a side hustle, freelancing, or working a part-time job can add extra security and funds to your finances.