How Should You Prepare For A Recession (If It Hits)
The idea of a recession is not one that is ever welcome. When a recession hits, most of society will feel its impact, even with buffers set in place to offset the possible drain on your funds. Because our economy is ever-changing, it’s always good to have adaptable guidelines when the need for them arises.
If a recession does hit, what are you supposed to do? Here are a couple of pointers on how to weather the next recession:
1. Try to Stay Calm
When it comes to dealing with a recession, the worst thing you can do at the beginning is freak out. Keeping yourself calm will help keep things in focus and help eliminate any possible stress caused by a market downturn. Some might get crazy and liquidate all their assets until they feel comfortable enough to put their money back into the stock market.
One economist recommended that one should “sell low, wait for some news to make the market pop and buy back in higher.”
2. Determine Your Financial Needs
It’s always good to have a nest egg tucked away as a “rainy day fund.” When a recession hits, it hits everyone at every level of the economy, so it’s always best to have a readiness plan for how you will handle your finances.
Sit down with your financial advisor before doing anything drastic. Amit Chopra, the managing partner of Forefront Wealth Planning and Asset Management, says “time in the market is the key to building wealth, not the timing of the market. Gerry Frigon, chief investment officer at Taylor Frigon Capital Management, that anyone taking a “business approach” towards their investment will be able to recover the best.
3. Reduce Debt
It should go without saying that debt reduction should be of paramount importance in the event of a recession. Author William Seavey is convinced that one is on the way, but he has a few ideas for how reducing debt may help. “…Relocating to a less taxed and expensive state is an option to preserve capital. Bottom line – cut down on unnecessary expenses and live more frugally until the economy returns to an expansionary mode.”
Get rid of your luxury items, like jet skis, a vacation house, or even a second car. If you can afford to lose it for a little while, do so.
4. Diversify Your Investments
It’s important not to put all your eggs in one basket, figuratively speaking. Investing all your money into one business or stock will not turn out well in the long run for anyone. No one has that kind of luck in the stock market. CFP Brent Dickerson states that “diversifying your portfolio among a broad spectrum of varying asset types, classes, and styles can be helpful in minimizing the effects of a market downturn.”
There’s no need to do anything else if you have a diversified portfolio. And be sure to keep your eyes away from the day-to-day market fluctuations. Do not cause yourself any more anxiety than the recession is already giving you.
“Trying to predict the market is like trying to pick the winning Powerball numbers. That’s why the best course of action is to set a well-diversified portfolio from the start and make as few changes as possible,” shares Dickerson.
5. Be Proactive
Nothing good ever came from a person sitting back and crossing their fingers that events turn out in their favor. Financial blogger Samuel Zhou think that it’s best to prepare for a recession even if one doesn’t seem imminent. “Have an emergency fund that can sustain you and your family for up to 3 months,” says Zhou, “ideally, for a year if possible.”
Remember to keep up maintenance on your vehicles and home to ensure problems are fixed as soon as they arise, possibly saving you thousands of dollars.
6. Think Twice About Big Purchases
Even if you have a job and the income feels steady, refrain from making any purchases you might regret sooner than later. Think twice before you have your floor redone, install new walls in your hallway, or take that trip to your favorite theme park.
“Remember, your economy is up to you.” States Dave Ramsey, author of Financial Peace. “If you’re out of debt and have money in the bank, then the chicken littles running around yelling that the sky is falling can yell all they want. When you have a plan, live on less than you make and save money, you are not in trouble.”
Follow all these tips if you want to ensure financial security in the event of a recession. Do you have any other ideas for how one can ensure their financial survival through a recession?