Money Tips to Survive and Thrive in a Recession
Because of the rising debt levels, volatile markets, and raising oil prices, a recession is even more likely today than it was before. Even the number of articles of experts saying that we are not in a recession are proof that we are in a recession: they don’t want the masses to pull their cash out before they can do it themselves !
For now, it’s been a mild recession, but having some money-saving strategies under your belt could be a lifesaver if worse comes to worst. Let me share with you some strategies you’ll know how to survive a recession and be prepared for when the times get better.
Unfortunately, we have no influence over a recession. But we do have power over how we react to and be ready for one. Before the next economic crisis occurs, make sure you implement some or all of these methods to recession-proof your finances because taking preventative actions can make a big difference.
Prepare an emergency fund
Saving for an emergency fund is essential when getting ready for a recession because when the economy starts to falter, our jobs and our income may be in danger.
In a nutshell, an emergency fund is money you have set up specifically to assist you get by during times of financial difficulty.
Emergency savings will provide you a safety net to fall back on so you can ride the wave and come out of the recession on your feet, regardless of whether your hours have been reduced, you’ve lost your job, your business isn’t earning any money, or you made some bad financial decisions.
On the other hand, not having an emergency fund can lead you to take bad financial decisions when an actual emergency arrive. Imagine you need to replace your car to get to work. With 4000$ saved up you can probably manage to get a beater car and continue working. Without these savings, you’ll have to take a loan, or even worse you’ll have to use your credit card to cover this cost. Imagine how much premium you’ll pay to your bank for this cash? The same beater car will probably cost you more that 1000$ in premium to your bank before you manage to cover that debt.
Try to save up to three to six months’ worth of your income, if you can, so you won’t have to resort to credit when times are tough and money is tight.
A mistake that frequently bothers people for years after the fact is using credit as a safety net. Most people don’t anticipate the need for a higher income than they presently have to pay back the money they borrowed (plus interest) during the hard times. If you are interested in creating an emergency fund today, I recommend our article on how much to save for your emergency fund.
Establish a Budget and Pay Down Your Debts
It’s true what they say: carrying debt is a burden. Furthermore, during a downturn when employment are hard to come by and money is tight, having to make such hefty loan payments can only heighten an already difficult situation. It is now necessary to evaluate your financial condition, including all of your outstanding bills, and to develop a strategy for paying them off.
It can be challenging to pay for daily expenses during a recession, let alone debt repayments, which can lead to an uncontrollable increase in your debt. High debt loads are dangerous since even a small change in outside circumstances could make it difficult for you to make payments. While you might be able to make payments right now, a job loss or an increase in interest rates along with banks reducing credit restrictions could make things worse.
Also remember that debts are uncontrollable in nature. When times are difficult, it’s always possible to reduce our spending. Do you really need to add tomato on that plate of pasta? Debt, however, can’t be reduced. Do you think your bank will allow you to postpone yur payment by a year or more? I don’t think so! But I’m sure your stomach can handle eating a little less for some days !
Setting up a budget that accurately reflects the money coming into your home and where that money is expected to go is the first step to successfully paying off your debts. Having a budget will help you discover expenditure areas you can reduce so more of your money can go toward paying down your debt if you aren’t attacking your debt as aggressively as you should, or worse, adding to your debt.
Live a More Frugal Lifestyle
Learning how to live frugally can be a smart strategy because, if you can figure out how to get by with less, you’ll boost your savings and won’t have trouble adjusting to a new way of life when a recession strikes. Any euro or dollar you don’t spend is a euro or dollar that can serve as a buffer when things go south.
But contrary to common belief, leading a frugal lifestyle doesn’t include squeezing every last penny out of your budget and denying yourself of the things that make you happy. Instead, it’s about making deliberate purchases that cut costs while barely affecting your way of life.
You can begin living frugally in a variety of ways. If your family currently has two vehicles, think about getting rid of one and taking the bus or train instead.
Your decision alone might result in a $9,000 yearly savings. On the other hand, if you absolutely must have two cars, think about trading in one of them for a more fuel-efficient sub-compact car to save money on gas. You might also consider cutting back on your grocery budget, and lowering your cell phone plan. Also, do you really need both netflix and cable TV plan?
Safety through diversification
Don’t put all of your eggs in one basket, as the proverbial phrase goes, which may be applied to your source of income and almost every financial decision. The inherent risk of relying entirely on one employment for all of your income is that if the economy collapses and you lose your work, you will also lose your single source of income and your ability to meet all of your financial responsibilities. This is especially true if your wife and you both work for the same company. What if that company goes under, and you both loose your job at the same time and without much notice.
Having multiple sources of income can be extremely beneficial. If one source of income begins to dwindle or is eliminated entirely, you have other options to help keep you afloat. Diversifying your income does not always require taking on a second job; in fact, if your spouse works in a different industry than you, congratulation because you already have some income diversity.
However, if you want to expand your horizons and earn more money, you can consider renting out a room in your home, renting out a space in your garage, or even purchasing a revenue property and renting it out. You can also start a blog or if you are quite handy you can advertise your services as handyman on local craigslists. Remember that in a recession, every home owner will probably end up in the same situation as you, and professionnal hands will become too expensive for them. You’ll be able to save them money by trading your time doing cheaply what a professionnal will do, and of course earn cash will doing it!
Diversifying your income is important, but so is diversifying your investments.
If you have the majority of your money invested in the stock market, an economic downturn could be a financial disaster if all of your money is invested in one type of investment. As a result, diversifying your investments is critical.
Examine your investment portfolio to ensure that your investments are spread across different industries and even different types of assets, so that when the market falls, your investments are not as affected and your losses are not as severe.
Real estate for example, is an investment that generally appreciate with time. In fact, as years pass by, there are more and more humans on the planet, but the total habitable surface available will stay roughly the same. As long as these two conditions stay the same, the real estate market will always go up on long stretchs of time. On the same vein, the gold supply is roughly the same, and because money isn’t based on gold anymore, the price of gold will stay fairly flat or appreciate when the percieved value of money will depreciate.
To summarize, having a healthy emergency fund, learning how to adapt to a more frugal lifestyle, and diversifying your wealth sources are just a few money-saving strategies that can help you survive a recession. A recession isn’t a matter of if it’ll happen, but when it’ll happen, so it’s up to everyone to have plans and strategies in place to thrive in these troubled times. Taking measures now to prepare your finances can make a world of difference when the downturn hit the fan and even let you be in a position to benefit from it when the world inevitably goes back on his feet.