Many people are worried about a looming recession, and it’s easy to see why :Rising inflation; spiking consumer prices; supply-chain issues; instability in the global market; and labour shortages. These issues have many financial experts saying that another recession is around the corner thus now is the best possible time to prepare your money.
So, here are some tips to get ahead of the upcoming crisis:
Think about where to cut back
A lot of things have gotten more expensive recently – gas, food, cars, furniture — which means now’s a great time to revisit your budget and identify some areas to cut back.
Deciding if something is a need or a want isn’t always black and white. Some things that may seem non-essential to some people, like a gym membership, others can’t live without. It’s all about weighing your current priorities with your long-term goals.
Start building your rainy-day reserves, if you haven’t already
Recession or not, you should have an emergency fund. These savings help you avoid borrowing money to cover unforeseen costs like repairs, medical treatments, or job loss.
If you’re just starting, the recommendation is to have around six months’ worth of expenses, including the amounts you spend on necessary items like rent, utilities, and groceries. That number may sound high at first, but small contributions over time can build those savings.
You’ll want to store your emergency money in a liquid account (like a high-yield savings account) to easily access it when you need it.
Pay off high-interest debt ASAP
The last thing you want to deal with during a recession is high-interest debt weighing you down. Credit-card debt should be the first to go.
Once you pay off your debt, you’ll have room in your budget to put towards other things, like growing your emergency fund or making up for rising consumer prices.
Think about your career
Recessions historically go hand-in-hand with higher unemployment — which means preparing your career for the next downturn is essential.
Now’s a great time to reach out to your network and continue to maintain connections with others in your field. Typically, higher education comes with lower rates of unemployment – so if you’ve been thinking about going back to school, now may be the time. Adding new skills or bolstering your current ones could give you an edge in the future, a tighter job market.
Be sure to weigh the pros and cons of potentially forgoing a salary or taking on student loan debt to earn your degree.
Don’t panic
Recessions can be an emotional and stressful time, especially, when it comes to your investments. Watching your portfolio fall into the red can be worrisome, but it’s important to avoid making a knee-jerk decision.
Depending on how much you bought them for, you could crystallise some hefty losses by selling and potentially miss out on a recovery. The uncertainty over the cost of living crisis will continue to cause market volatility, so the key is to focus on longer-term goals and wait to ride out the inevitable bumps in markets.
There’s no doubt that the idea of a recession can be anxiety-producing. But making a plan beforehand and taking the steps to prepare yourself can help you feel more in control of your situation and reduce some of your stress.
Remember that there are always losers and winners. Even during the down times, there are possibilities to make a profit. For example, traders will give good discounts or interest-free finance options. If you plan a reconstruction in the house or a big purchase such as a new car, it’s better to wait for a couple of months trying to get a better deal.
As chartered management Accountants we can manage your finances, so you don’t have to. Get in contact with us today to relieve that extra stress.