- 1 Some Simple Ways You Can Prepare Yourself To Better Weather The Pandemic-Induced Storm.
- 2 Final Thoughts
Recessions are not common occurrences, so it’s natural if your first instinct is to panic when the threat of recession looms.
Any period of notable economic decline that endures for at least two consecutive financial quarters qualifies as a recession.
A declining economy impacts various areas from income and employment to retail sales and manufacturing. Recessions also negatively impact the GDP (gross domestic product) growth rate. This reflects the market value of goods and services.
Now, while you shouldn’t panic about a recession on the horizon, you certainly shouldn’t ignore it either.
Some Simple Ways You Can Prepare Yourself To Better Weather The Pandemic-Induced Storm.
1) Build an Emergency Fund
Job losses are commonplace during periods of recession. Some industries will be more acutely affected than others.
Whether you feel like your job is in jeopardy or not, it’s a smart move to start building an emergency fund.
To achieve this, you can start by minimizing expenditure. Scale down luxuries like eating out, traveling, and entertaining.
You should aim to accumulate 6 to 12 months of living expenses. In the event of job loss or needing to pay more for medical bills or other benefits, an emergency fund to draw on will give you the breathing space you need until the economy bounces back.
2) Get Yourself a Side Hustle
When the economy slows down, it’s a great time to secure a side hustle. Money earned from side gigs can be used to swell your emergency fund.
If you lose your job in a recession, having a side hustle to fall back on will also provide you with at least some income until you get back on your feet.
Consider freelancing. Many microsites allow you to sell a variety of services to a market of willing buyers. Think about consulting work if you have marketable skills. Research any ways you can create extra income streams in line with your skillset.
If you have a spare room, you could think about renting this out to bring in some extra cash.
3) Upgrade Your Resume and Stay Marketable
Recessions affect employment so it pays to keep your resume current.
Include any new classes, workshops, or skills you might not have added since you last looked for work.
It’s a good time to investigate any relevant areas of personal development, too. Picking up new skills will ensure you’re most likely to be retained if your employer needs to start shedding personnel.
Sharpening your skills will boost your chances of staying employed, and will also increase the likelihood of finding a new job if you need to.
4) Network Aggressively
Whenever you feel your livelihood could be endangered, it pays to start preemptively networking with groups and companies looking for people with your background and experience.
LinkedIn is a great platform for connecting with hiring managers in your industry. You could also attend alumni networking events, and join relevant local business groups.
Always have a well-honed elevator pitch ready so you can sell yourself in 60 seconds flat. What do you do best and why should someone hire you?
5) Pay Down Debt
The less you owe, the easier you’ll find it to ride out the recession. You’ll have more money in your pocket each month and you won’t be squandering money on interest payments either.
To reduce your obligations, you’ll need to stop increasing your credit card debt, and you’ll need to stop applying for more loans. If you can write a check and pay down your debt, do so. Do not pay off the debt in full unless you already have a sufficient emergency fund in place.
If you’re unable to pay off the debt in full, increase minimum payments and formulate a plan to pay that debt down.
Examine your spending and identify areas you could cut back. Apply these savings to the debt.
If you find a side hustle, use this money to pay down debt.
Bottom line, eliminating debt saves money, and it can boost your credit score, too. Then, if you need to borrow in the future, you should qualify for keener interest rates.
6) Look at a Dollar-Cost Average Strategy for Investments
A dollar-cost averaging strategy for investing can minimize your risk.
The goal of this strategy is simple: to reduce the effects of volatility by investing a fixed sum in a specific stock or fund at set intervals.
By putting your investments on autopilot, you remove emotion from the process. Also, you’ll avoid investing all your money each month at a point where prices are sky-high. You’ll be free to buy when more shares if prices are low and fewer shares if prices climb.
7) Review Your Portfolio
If a recession seems likely, it’s wise to scrutinize your investment portfolio.
Could you make any tweaks to better offset volatile periods like recession?
Is your portfolio sufficiently diversified?
Here are some ways to make sure your investments are protected:
- Speak with your financial advisor
- Consider investments with a history of weathering market decline
- Ask for recommendations about balancing your portfolio
While it’s natural to panic at first, it’s key to maintain a long-term perspective when investing, even if you’re experiencing an economic downturn.
Markets tend to recover and stocks typically appreciate more rapidly than bonds and other investments.
Luckily, you can often pick up on warnings of a recession before it unfolds. This means that in the majority of cases, you do have time to prepare yourself.
The most effective strategy involves heeding warnings of a recession and taking the necessary preparatory steps. The very worst thing you can do is to panic and make reckless, impulsive financial moves.
If you require advice on rebalancing your portfolio, you should speak with a financial adviser.
Remember: the threat of a recession is no time to take the ostrich approach. The more steps you can take before a recession kicks in, the easier you’ll find it to survive, and maybe even thrive when times get tough.