Financial and economic experts predict an economic downturn in the near future, which is a worrying situation.
According to The Washington Post, up to 90 percent of stocks belong to the upper 10 percent of the wealthy in America. The biggest worry for you is your job and whether you’ll be able to keep it in 2019; stock market swings shouldn’t bother you much, unless you’re part of that 10%.
According to the Federal Reserve, unemployment is bound to decrease this year. This is a sigh of relief for many. However, if the financial experts are right, and the economy takes a hit, what plans do you have in place to weather the financial storm? Are you ready for the next recession?
1. Pay Off Any Debts
You won’t survive the recession if you’re burdened by debt. If you are, however, you’ll be 10 steps behind after the economic downturn, which is why paying off all debts is a wise move. This is why.
First off, the Federal Reserve is eyeing an increase in the interest rates. This means your current debt will be more expensive to service. (Don’t you wish this was your savings account?). Also, keep in mind that banks will still have an appetite to lend but only to those with stellar credit.
At the moment, you have a job, so your debt repayment plan isn’t in jeopardy. Nevertheless, you should prioritize it because the coming recession will result in casualties, and if you’re among them, you’ll be in a difficult situation.
Repaying any loans, you took out should be a priority. In the event you don’t pay up and lose your job, you’ll have to pay it off or the distributions will attract fines and taxes.
2. Make Contributions to Your Roth IRA
If you’re able to contribute to a Roth IRA, it’s in your best interest to do so. Your contributions can act as a shock absorber during the hard times because it’s possible to withdraw the contributions without penalties.
Therefore, should the recession axe fall on you, you’ll still have access to funds to steer your finances out of the economic downturn. That is true only if you start making contributions today, however.
3. Save and Then Save Some More
A recession means dry pockets and the last thing you want is to end up in debt during a financial storm. To avoid this, financial experts recommend saving at least 6 months’ worth of your living expenses. These savings will act as a cushion if you lose your job, something the last recession was infamous for. If you predict difficulty in finding another job during the downturn, then go for an entire year’s worth of expenses.
As much as saving sounds easy, it’s a hill climb for many people, considering that you may have student loans to clear or other living expenses that require you to dip into the same pocket. In fact, according to a CareerBuilder survey, many Americans live from one paycheck to the next.
This means saving is only a word and not an action anyone in this paycheck to paycheck category can execute. However, several financial experts say saving has more power than what many people think.
Savings operate similarly to compounding interests. They pile over time even with as little as $100 a month, you can accumulate quite an amount over time. Therefore, it doesn’t matter how little you save—the most important thing is that you do.
4. Review Your Financial Decisions
Tough times call for tough decisions. Recessions are one of those times, and reviewing your financial decisions is important so as to cut out waste and avoid unnecessary financial obligations. For example, if you have reasons to believe you might lose your job, taking out a loan to buy a new car isn’t the best of decisions.
Think about it. How will you pay the loan without a job or when amount is bigger than current earning capacity? In addition, this is also the best time to review your current financial obligations. Is there a way you can reduce the obligations to make life easier?
For instance, you can increase your monthly car payments to reduce the burden while the times are still favorable. You can also cut down on your groceries or even forget about cable TV.
The same goes for your home. While owning a home is an excellent investment, financial expert’s advice buying at the bottom of a recession when prices are low, even though it’s tempting. They also say they don’t foresee a housing crash, but they urge potential homeowners to keep an eye on the market due to its unpredictable nature.
Therefore, it’s only right that you understand how buying a home will impact your finances and debt situation. If it’s manageable, you can go ahead and buy the home. Waiting until the recession hits isn’t a good idea.
5. Start a Side Job
When looking to be financially stable, you do one or both of two things: 1) Pay off your debts or 2) earn more money to help you clear the debts and sustain your current lifestyle. The latter is the most viable and common option.
Thanks to technology, you can now work part-time jobs as a freelancer by offering your skills. Some of these jobs include writing, social media marketing, babysitting, or even online tutoring.
With an alternative source of income, you can weather an economic downturn should you become a victim of job loss and be without a job.
6. Build More Networks
It’s common for people to start going through their phone address books trying to look for opportunities after a job loss. However, this is the wrong way to go about it since it’s a kneejerk reaction.
Instead, make it a habit to do so, even when the economy is sailing in calm waters. They say the best preparation for tomorrow is today. For example, if you think your job may be hanging over the edge, start making new relationships with people in places you believe you could get a job. Such people can offer valuable information, which you can use to get a job or make a career change. Also, if you intend on making a move for a higher position within your company, it’s best to start forming healthy relationships with people in that position.
Find out what you need to learn in order to climb up the ladder.
7. Rebalance Your Portfolio
Similar to a budget, you can adjust your portfolio with a recession in mind. If you have a sizeable stake in the stock market, and you may need the cash in the near future, now would be the best time to move the investment is short-term bonds.
Also, take this time to rebalance your investment portfolio to include cash, bonds, and stocks. This diversification makes you less vulnerable to losses.
Every time anyone utters the word ‘recession’ people shudder with fear. However, this is a necessary part of the business cycle in every economy, and you must take steps to secure yourself from it. The steps will vary from one person to another, but what’s most important is that you implement them to provide a cushion during tough times.