5 tips for dealing with an economic downturn

Many people are worried about a looming economic recession. Although it is not possible to predict exactly when the economy will turn worse, the good news is that the economy is not in a recession yet.

That means now is the best time to prepare yourself financially for a recession.

Here are some helpful expert tips for you.

Cut unnecessary expenses

Recently, the prices of many items have increased sharply, including essential commodities such as petroleum and food. It’s time to review your budget and identify some expenses that need to be cut, such as non-essential services or products.

There is no absolute clarity in determining whether a need or want is essential or not because there are things that seem unnecessary to some people but are necessary to others. It’s important that you weigh your current priorities with your long-term goals.

Set up an emergency fund

An emergency fund is absolutely essential whether there is a recession or not. This savings helps you avoid having to take out a loan to cover unforeseen expenses like repairs, medical treatment, or job loss.

It’s surprising how many people are not prepared for the unexpected. According to a study from Bankrate, 25% of Americans say they have no savings for emergencies.

Initially, you should put into the fund an amount corresponding to 6 months of spending, including spending on essentials such as rent, electricity and water and groceries. That number may sound high at first, but you can build savings from small contributions over time.

Pay off high-interest debt as soon as possible

The last thing you want to deal with during a recession is high-interest debt that’s weighing on you. Interest rates can go even higher, costing you a huge amount of interest every year.

Once you’ve paid off your debt, you’ll have enough budget to invest in other things, such as developing an emergency fund or offsetting rising consumer prices.

Thinking about career

Historical recessions go hand in hand with unemployment rate rising, which means you need to prepare your career for the next recession.

Stay in touch with others in your field. Usually, a college education comes with a lower unemployment rate, so it may be time to go back to school if you intend. Adding new skills or strengthening your current ones can give you an edge in a more competitive job market in the future.

Keep calm and continue with the plan

A recession can be stressful, especially when it comes to investments. Losing an investment can be worrisome, but it’s important not to act impulsively.

Changing your investment strategy can be detrimental to you in the long run because markets often evolve over the long term and behave in ways you might not expect. A good example is the stock market which has fully recovered after falling more than 30% in March 2020.

To prepare for a future recession, you simply need to review and rebalance some investments. Having a diversified portfolio will help you minimize losses in a volatile market.

Certainly the economic downturn will make people nervous. However, with a specific plan prepared in advance, you can take good control of the situation, thereby reducing stress. Remember, it’s never too late to double-check your finances and now is the right time to start.

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