In any economy, what goes up must come down; even if things have been good, there will be cycles where things shift downward. This is known as a recession. There are many signs right now that even though the economy hasn’t crashed, it has shrunk considerably, with job losses, inflation, a higher cost of living, and bank closures.
Though we aren’t in a full-on collapse, things may get worse before they get better, and the wise thing to do right now is to prepare your household for that. There are so many measures you can take to make sure you and your family don’t have a hard landing, and these measures can also allow you to take advantage of some of the unique opportunities that arise during this time.
Here are ways to get recession-ready before it even begins.
Adjust Your Mindset
In the lead-up to an economic downturn, things can seem significant financially, so many people spend their money more than usual. This gets many people in trouble when things start to slow down because all the income you could be socking away is eaten up through needless spending. To get through a recession, you must think more long-term than the short-term gratification of buying something nice now. Choose to stack up as much money as possible instead now so that things can be better for you and your family. It’s better to be on the side of financial caution than regretful.
Build an Emergency Fund
Many people live paycheck to paycheck; the problem is that they don’t have a financial buffer if an emergency arises. It’s essential to have a cushion of money to pay for unexpected expenses, such as medical bills, car repairs, or job loss. It would be best if you aimed to save at least 3 to 6 months of living expenses in your emergency fund. This will help you survive financially if you or your spouse loses their job.
Prepare for Opportunity
As the economy shifts, there are going to be new opportunities presented, and if you have a bit of extra cash available, you will be able to invest in them. Whether it’s buying stocks on the cheap or investing in a rental property, there are some sources of capital you might be able to access to set yourself up for the future. From hard money loans to borrowing money within your social circle or a reverse mortgage, there are some clever ways to raise some extra cash. To determine how much you might qualify for, go to reverse.mortgage/calculator.
Reduce Debt
During a recession, the last thing you want to have is debt. It will put a tight squeeze on your finances, and if your income shrinks, it’s a full-on catastrophe. Before the economy takes a downturn, try to get your debt as low as possible so you’re not worrying about paying it off and have a new backup source of funding. Having debt will make a slow economic season much harder, so find ways to eliminate that. You can try consolidating all your debt and use debt experts to help you decide the way forward.
Cut Back on Expenses
Another way to prepare for a recession is to reduce expenses. Look at your monthly payments and see where you can trim them down. For example, you can reduce dining out, streaming services, and entertainment expenses. This will help you save more money and reduce your monthly bills.
Diversify Your Income
In a recession, it's essential to have multiple streams of income. If you lose your job, you'll still have other sources of income to fall back on. This is the perfect time to start some, and the great thing is that so many opportunities are available. You can start a small business from home, take on freelance clients and projects, and do many other things. That way, you stabilize your income and create even more of a buffer if you lose your job.
Preparing your household for a recession is essential to minimize the impact of a financial crisis. By building an emergency fund, reducing debt, cutting back on expenses, diversifying your income, and preparing your home, you can survive financially during tough times. Remember, it's better to prepare now than to regret it later.
