How to prepare for recession?
Want to learn how to prepare for a recession in a few easy steps? You’ve come to the right place! Let’s start by answering a few key questions:
This post is all about how to prepare for recession.
What is a recession?
A recession is when there is a decline in economic activity, generally across an extended period of time (over several months).
What does a recession look like?
During this time, companies could be gearing up to save on cash. What this could look like may include hiring freeze, layoffs, lower salary increases, removal of bonuses, etc.
Therefore, on the employee’s end, this could result in a decline in income, employment, production, sales, etc occurs. Essentially, what would you do if you knew you could lose your job sometime in the not-so-far future?
Why is a recession scary?
Well, there are a lot of people who rely on their jobs as their sole source of income. When they’re at risk of losing that, that can definitely have some significant impacts to their lives. Although the loss of a job isn’t a good thing, you’ve come to the right place to prepare for it.
Remember, this is one of those things where it’s better to be prepared for and have at your disposal, but hope to never actually use.
How to Prepare for Recession
1. Boost Emergency Fund
Typically, an Emergency Fund consists of 3-6 months of expenses. However, you can adjust based on your situation and comfort.
For some, this could be 3 months. For others, this could be 6 months up to 1 year of expenses.
The reason there is a difference is because it ultimately depends on your situation. Those who have businesses with high overhead costs may want to have a larger reserve in the case anything happens.
As we saw with 2020, it definitely worked out in their favor for those who had 6+ months of expenses saved up. And for those who didn’t had to face the reality of permanently closing their doors.
This is why having an Emergency Fund is so important, and is the first thing you should prioritize when getting financially fit.
2. Revisit your budget
The budget may be more flexible at times, but if preparing for a potential recession, it is best to save up as much cash as possible in the off chance you’ll need it. Remember, you may not actually need to use the cash, but it’s best to have some stashed away in case you do need to use it.
A quick way and easy way to do this is to trim expenses you don’t need. Nowadays, it seems as though there’s a subscription service for just about everything.
That’s why I recommend taking a look at those sneaky monthly subscriptions, and cutting some that you don’t use that often. That, or the services you use out of convenience, but don’t necessarily need. These could include streaming services, food delivery, and more.
Looking for more ways to stash more cash? Check this post out for some side hustles you can do!
3. Manage your debt
Stay on top of your debt. Why is this important? Well, part of your expenses you’re accounting for when building your EF includes any debt payments you’ll have to make.
Otherwise, if you’re late, you could incur late fees, or worse, if you don’t pay, they could ultimately get sent to collections; therefore, impacting your credit score.
4. Keep maintaining investing strategy
Now, the market may seem scary because it’s very volatile and keeps dropping in value. However, it’s important to maintain your investing strategy if you can afford to. Remember, take care of your Emergency Fund, debt payments, and other necessities before you consider investing.
5. Don't be scared
While the psychological impacts of losing a job are not to be taken lightly, if you are sufficiently prepared, losing a job may not be the worst thing to happen. It could be the ultimate push for you if you’ve been seeking to make some changes in your life.
For example, being unhappy at your current job, taking a necessary break, upleveling your skills, even pivoting careers. The opportunities are endless!
This would be a great time to start any of those if you were considering it but found it hard to do so with the typical 9-5. As long as you have sufficient preparation, (in other words, an Emergency Fund), you would finally have the time to find a different/more fulfilling job role, reset, gain a new certification, and change careers entirely.
To reiterate, the top 5 points about how to prepare for recession are:
- Boost Emergency Fund
- Revisit Your Budget
- Manage Your Debt
- Keep Maintaining Investing Strategy
- Don’t Be Scared
There you have it! The top 5 tips in how to prepare for recession. It’s not as scary as you may think as long as you have sufficient preparation.
Interested in more ways on how to prepare for recession? Check this post for some side hustles that could really boost your emergency fund!
Hey!
Interested in seeing more? Check out our Instagram, Pinterest, and Twitter below!
