Guest Author: James Bell
The mere mention of recession is enough to instill slight panic in people. So, it’s no wonder many wonder how to prepare for such an eventuality. In order to help out, we’ve put together a guide on the steps to take to prepare for a recession!
Pay off all debts as soon as you possibly can
The first thing you need to do to prepare for a recession is eliminate all your debts. Debts are one of the biggest threats to people affected by the recession. No matter how benign they may seem now, interest rates would be hell to manage. And when you are trying to scrape together monthly budgets, increases in your set expenses can mean being close to completely broke. Lots of people think that just dealing with high-value debts is enough. However, this, too, is a mistake. Death by a hundred little cuts is no more pleasant than getting hit by one enormous expense. Besides, working to eliminate current debts would also improve your credit score. This means that if you are forced to take out a loan to tide over the recession, you will be able to walk into a bank and get the money you need.
Try to build up your bank account
The second step to take to prepare for a recession is to work on your savings. The more money you can set aside for a rainy day, the better. It directly minimizes the chances that you will eventually be bled dry and unable to tide over a month. Especially if you fail to pay off all your debts before a recession hits, this does mean, however, that you should try to cut back on your monthly spending now. If you reorganize your budget, you might find opportunities to do this and pin down frivolous spending. We are not saying you should immediately start living like a recession’s ongoing already. But it’s a useful practice, and even if a recession is avoided, you’ll have a nice, plump bank account to play with! This best-case scenario would let you improve your family’s finances relatively quickly.
Secure your employment and livelihood
Having a stable source of income is essential during a recession. This does, unfortunately, mean that you’ll need to look for a different job if your current employment is tenuous. There are two things you need to look for when trying to find an ‘ideal’ recession job. First, people will need it even when the recession hits; second, your place within your new company or business is secure. You do not want to constantly fear being fired as part of cutting down on expenses during a recession. Of course, if your current job fulfills both these criteria, you’re already safe and set! Note, too, that it’s not necessarily smart to jeopardize that in order to look for a higher-paying job. Still, it is a good idea to learn more about potential opportunities and maybe pick up a side gig.
Approach your investments the right way to prepare for a recession
People love to recommend ‘solid investment’ as a way to prepare for a recession. However, what does this mean in the context of a recession? Well, you need an investment that will appreciate in value. For example, just investing in real estate might not work out great if the value of homes plummets. However, if you ensure you are buying a quality home and set it up as a rental, that’s a relatively steady payoff from an investment. So, follow similar rules you would when looking for recession employment, and you’ll be fine!
Try to avoid expensive and life-changing decisions
If you are trying to prepare for a recession, then it’s really not smart to make major changes in your life. We are not talking about switching your job. We are referring to buying a new home or moving to a different state. If you are moving from Florida to Texas and hiring interstate movers, then even if you go to great lengths planning to move across the country cheaply, you’ll still need time to figure out your new environment and make all the payments and purchases that setting up your new life requires. No matter how careful you are, this will probably wipe out most of your savings. And it’s very likely that you’ll need a mortgage to purchase a home in the first place. This, of course, goes directly against our first advice to eliminate debts.
Be smarter with your everyday spending
We mentioned frivolous spending already, but just clamping down on that is not enough to beat the inconveniences of a recession. Instead, you need to examine your everyday spending, too—things such as food, toiletries, and similar. Chances are, you are not really being optimal in your purchases. For example, you might be buying brands that are not just lower quality but also more expensive than other available options. This typically happens because we, as consumers, tend to grow fond of certain products. So, even if their quality declines and prices rise, we just keep buying them. When you are shopping, really examine the prices of different brands. You should even visit different shops and see if there are notable price differences. If you do, you might be able to save much more money than you’d expect just by switching what you buy.
Consider the steps you can take to be more self-reliant
The final thing you can do to prepare for a recession is build a more self-reliant lifestyle for you and your family. First, you should seriously consider installing solar panels in your home. A major expense like electricity can hit hard during a recession. So, having solar panels that can offset or even entirely nullify the cost of keeping your home powered is a major boon. If you live in a sunny place, you might even be able to generate enough power to start selling it to your city or state! Second, you should think about starting a garden. It’s relatively easy to figure out the best vegetables to plant, so you wouldn’t have to spend as much on groceries. As a bonus, you’d know exactly how they were nurtured and that they are actually safe and healthy to eat!
Take your time to prepare for a recession
One of the most important things to remember about the steps to take to prepare for a recession is not to rush. For example, putting yourself in the red trying to clear out your debts is just hurting yourself. As long as you are in a stronger position than you are now if a recession hits, you can count your efforts as a success.
James Bell is an experienced financial advisor, financial manager, and accountant who works closely with National Moving Services and assists them with budget analysis. He also likes to write blog posts about topics he's passionate about to spread useful knowledge.