Economic Recession is a condition where there is a decline in economic activity such as a decrease in business and consumer spending, a decline of industrial growth, and an increase in the unemployment rate.
The trigger of economic recession could be a financial crisis, trade war, disruption which led to shock in the global supply chain (especially in commodities such as oil and food), geopolitical tension, war, or economic bubble.
Before Economic Recession
Economic recession could have a devastating impact on personal finance. The recession caused the business to go bankrupt, people losing their jobs, and rising in food and other commodities prices. Not only that, it resulted in the loss of capital in the savings and investment account.
Even though we had passed the current global recession in 2009, the biggest among other recession, we should be prepared for other recession that might come, so we can minimize the impact on our personal life.
[Read: “Economic Effect of World War 3” IMPORTANT Things You Need to Know]
Now, here are several ways to prepare before the recession takes place. Please read on.
#1 Life Insurance For Family
Why you should consider having life insurance earlier? We never know when health problems occur in us or those we love. And as we grow older our body loses its productivity and is vulnerable to health issues. And the risks which are to die soon or live longer are two facts people couldn’t escape from.
Therefore, getting life insurance is the best choice to protect you and your family.
Life insurance can serve various purposes such as health care, funeral costs, debts, or as capital to open a new venture, for those you love.
[Read: How to Choose The Best Personal and Family Health Insurance]
During the economic downturn, the price of health facilities could soar up because of inflation along with food and other commodities.
You wouldn’t want to pay more at that time to get medicine or other living expenses, would you? Or if someone on whom you or other family members depend on the financially lost job, it could impact negatively on you and other members.
That’s why obtaining life insurance now will save you and those you love in the future. If you are in your 20s or 40s, it’s never too late to get life insurance. You still have time and are in a productive age to make money.
Have you prepared for life insurance for you and those in a family who depend on you?
#2 Living Within Your Means
Taking control of your monthly expenses can add up your savings. Begin tracking down those bills that you don’t necessarily need each month. They can be a subscription of cable TV, internet program, games or other smartphone apps, unnecessary entertainment programs or personal care.
Going with a strict budget can be a starting point if you are on an aggressive plan for saving and investing. It aims to make you spend less and save more.
This can be a great way of living less than or under your income. It doesn’t only get your budget under control, it also helps you notice things you need versus stuff you want.
When you live within a reasonable monthly budget according to your basic needs and income, chances are you would be fine when the recession hit and force you to have a strict budget.
#3 Pay Down Debt As Soon As Possible
Having debts during a recession will weigh you down emotionally and physically. By paying down your debts as soon as possible, you’d prevent yourself from other financial troubles while the recession happening.
Keep in mind that, your target is to get out of debt quickly. So, setting up a debt reduction plan will help you in the way. You can list and prioritize to pay debts with lower interest first from the credit cards.
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The reason is that credit cards contain fees that could add up. The more you use them, the more fees are charged on you. Besides, closing down your credit cards faster will boost your motivation to be free from debts or from the desire to have a new one.
Being free from debts during the economic recession could lower the pressure on your cash flow and keep you from making new ones. On top of that, you can redirect your money into your savings and investment plan. Who knows you can buy a new house when the recession hit.
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#4 Add Several Incomes
If you are an employee, figure out new streams for your income can be a great idea to face a recession. As there will be a company that will lay off its employees, you can anticipate that with having passive income.
If you look for passive income streams, today many online streams give you that chance.
The fields are various from blogging, designing, email marketing, crowdfunding, or other online business you can turn into an online asset. In this article, I explained in detail about online passive income.
[Read: Why A Business Model Canvas Help Your Business Thrive]
Unless your passive streams give you the financial freedom you need consistently particularly during an economic downturn you should consider improving your skills, in case you lose your job. Besides, consider a job that will thrive in a recession such as accountants, financial advisers, or property agents.
Upgrade skills by joining a training would help you create a strong profile of your skills which later can be used to find another job. This can be based on your field of expertise or hobbies.
You can join courses related to your work, business or financial consultancy for example. The idea is with the skills you have, you can make money out of them, especially in a recession.
For a business owner, you can try to diversify your income by investing or creating a new business that has a good prospect, particularly during an economic recession.
#5 Start Investing
Don’t quit investing. But if you haven’t started yet, now is the time. People tend to choose an investment that could give them a big return fast. Though it isn’t wrong, you’ll need to assess investment based on your financial goals and risk tolerance.
Investment vehicles you could try are property, precious metals, stocks, mutual funds, bonds, compound interest savings, or crowdfunding such as P2P lending. But there are assets or stock you should avoid during a recession, those with high leverage, cyclical and speculative.
[Read: Here Is What to Know About Economic Growth 2020]
For investment strategy during a recession, you can apply a long-term strategy. And the best assets to invest in are those that perform well in recession and rise in price.
It can be safe-haven assets such as precious metals, or land. For stock, you can pick one from areas such as utilities, main consumer products, and grocery stores.
People tend to reduce their spending on secondary needs and increase it to basic or primary needs such as food in a recession. Other stocks are those with dividend-paying and from companies with a strong balance sheet and cash flows. If you start investing now, your return will go up when a crisis happening.
Recession is a temporary condition and followed by recovery. So you can use this opportunity to buy a stock that will rise after the crisis.
#6 Prepare For an Emergency Fund
Having an emergency fund is a wise way to prepare for an economic crisis. Make a plan to transfer 3 to 6 months of your monthly expenses into your savings. You can double it faster using a compound interest savings account.
And you can download Finansialku application to help you count the amount quickly and easier. Or you can consult it with our financial planner. Download Finansialku application on Google Play Store or Apple App Store right now.
It is true that without emergency funds, you’ll be exposed to financial troubles especially if you don’t have enough money to pay for food, rent, or medicine in a recession.
Since prices tend to go higher, business revenue decline and job losses happening, it can add more pressure to your budget, if you have less money and loss job.
#7 Keep Up With Economic News Update
This is an important task that you need to do particularly if you already have an investment in the long-term. By updating financial and economic conditions that likely influence your investment, you can make an informed decision on the adjustment or protection of your assets during a financial downturn.
As the economic recession affects your cash flow and budget, increasing your financial literacy will help you survive in recession and be ready to increase your asset performance and return when the economy recovers.
Conclusion
Economic recession is the condition where business, industry and consumer productivity are declining for a while. The impact can be worse particularly to peoples’ finance if they are unprepared.
By taking these steps, hopefully, you can prepare for an economic recession and reduce or eliminate the trouble it may bring.
If you find this article helpful, please share it with other people you love and care about. By doing this, you help them to prepare as well when a recession arrives.
References:
- Camilo Maldonado. October 4th, 2019. 7 Things You Need To Do To Prepare For A Potential Recession. Forbes.com – https://bit.ly/39YZbAu
- Admin. Persiapan Pribadi Menghadapi Resesi Yang Akan Datang. Simulasikredit.com – https://bit.ly/2QnutJn
- January 9, 2020. What’s the Best Investing Strategy to Have During a Recession?. Investopedia.com – https://bit.ly/38OOrTO
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