There are two things guaranteed in this life. One is that we’ll all go through ups and downs. Secondly, we can bounce back from almost anything even an economic downturn. It helps to be prepared – to read the signs so that you can start putting in measures to make sure when the storm comes you will survive and live to fight another day.
A personal financial crisis is one of those things that a lot of people experience every once in a while. It could be a season when everyone is going through a recession or it could be a personal financial crisis after losing a job or a failed business. Nowadays a medical debt of a family member can take you back to zero or almost zero.
Here are 8 ways to prepare for an economic downturn.
1. Bulk up your emergency savings
Saving is a luxury, and that has become crystal clear in the last couple of months. It’s no wonder jokes are flying around that ‘if the money you have cannot solve the problems you have, eat that money.’ This, by the way, is terrible advice. If you are among the lucky few who can save up, you need to maximise your emergency fund. In a recession, having an emergency fund can save you a lot of stress. It can also help you avoid becoming financially over-extended or having to leverage debt just to get by.
Check out The Importance Of An Emergency Fund and Finances: When You Should Use Your Emergency Fund
2. Pay off debt
It seems contradictory that you’re walking into a recession and at the same time being advised to pay off debt. But, this is one of the fundamental ways to prepare. Any debt that has an interest rate in the double digits or has a variable rate is worth trying to get off your plate as soon as possible. Why is this so important during a recession? Paying off your debt will save you a ton of money in interest payments.
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3. Create multiple streams of income
Relying on one stream of income won’t do you any good during an economic downturn. Anything could happen, and you could lose that job or that business. The average millionaire has 7 sources of income, and for good reason. It acts as a buffer should you lose any of the other sources.
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4. Consider a recession-proof job
In the world we live in today, you simply cannot afford to have just one skill. You need to be able to do a variety of things. A recession-proof job will help you to keep the cheques coming in regardless of the economic situation. Expanding your skills is great for job security, especially when it comes to working remotely. Companies are shifting towards remote positions now more than ever. This is the time to tailor your skills to suit these positions.
5. Nurture your career
It’s really easy to get comfortable with your current job, but when you can foresee an economic recession, you must change this. Even if you’re happy with your current job situation, it’s always a good idea to keep your resume updated. If you lose your job due to a large economic event, a strong resume may make it easier to bounce back or pivot to a new career.
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6. Cut your expenses
There’s no point in working so hard if you’re not going to enjoy your money, right?
When you can predict an economic downturn in the future, you’ll need to let go of some of these luxuries. It’s senseless to tell people to save up a certain percentage of their salaries without knowing their financial situation and responsibilities. So, just ensure that you lower some of your wants and focus more on your needs and savings. Keep in mind, that it is better to cut expenses when you can than when you are forced to by your economic situation. Downgrade your lifestyle.
How can you cut down on expenses? Reduce electricity usage and learn to eat at home instead of ordering takeout. Reduce your subscriptions and especially those with outrageous fees or even cancel them. Shop more from the second-hand section of items and clothes. Move to a cheaper house. Start taking public transport instead of driving. You may also have to take your children to cheaper schools. It is better to do things in your own time when you have options than to wait for options to be forced on you because the options that will be forced on you, you will not like. The money you save can be used to take you further and when things pick up and you are stable again, you can upgrade.
Basically, if you can lower or completely eliminate your wants and focus on your needs, you’ll be in a good place.
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7. Reconsider your black tax obligations
Black tax can be a lot! There are instances where parents have passed down almost all their responsibilities to their kids. If you’re ever in a situation where you foresee an economic downturn, then you may need to reconsider your black tax obligations, and in good time. You don’t have to turn down all the obligations, but take a look at what matters most. If it’s not that necessary, then you may need to have that conversation with your parents, uncles, or whoever you pay your black tax to.
Dealing With The ‘Black Tax’
8. Re-evaluate your budget
When you take a look at your budget, what percentage of your income are you saving or investing? How are you using your money? By doing a lifestyle audit, you’ll be able to see exactly where your money is going. This will open your eyes to seeing where you can cut down or completely eliminate an expense. That way, you can reduce the luxuries and leave that money to save for a rainy day. 7 Budget Cut Ideas For Those Trying To Save More Money
Here are some other articles that will help
11 Life Hacks For People Going Through Tough Financial Situations
Finances And Investments: How To Plan For The Things We Cannot Plan For To Avoid Being Blindsided
Family: Dealing With Emotional Black Tax
There Is Never A “Perfect” Time To Invest – How To Invest In A Bad Economy
7 Tips To Survive Inflation
Lifestyle: 7 Ways To Reduce Your Food Budget
Finances 101: How To Create A Budget And Different Budgeting Methods You Can Use
How To Manage Finances When One Partner Loses Their Job
7 Signs That You Are Headed Towards A Financial Disaster