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May 10, 2018

How to Prepare for the Coming Recession

Recessions happen and according to a growing number of economists and other market watchers, it would appear that another downturn is looming on the horizon.  However, it is too early to know when this will happen as well as how much of a bite this recession will take. 

One thing is for sure, even though the U.S. has been in one of the longest bull markets in history, it the growth has not been spread evenly.  This is largely because the economy is changing and value created from work has vastly fallen behind value created from investments.  With that in mind, here are some tips for the everyman (or woman) to prepare for the coming recession.

Feel Unprepared – You’re Not Alone

According to research, nearly two-thirds of Americans are not ready for a major downturn in the economy.  In fact, it has gotten so bad that most people don’t even have enough money in their bank account to cope with an emergency.

One possible reason why so many Americans are unprepared is that the last recession was so bad.  In 2008 and 2009, millions of people lost their homes, their jobs, and just about everything else they owned.  Think about it, you probably know someone who lost most, if not all, their retirement savings when the stock market collapsed.

However, you should let the fact that you might not be prepared today discourage you as there still is time to get ready for the coming recession and here are some ideas.

1)     A Penny Saved is a Penny Earned

While it’s almost impossible to know when a recession will strike or when you will be affected by it.  As such, you should start today by hoarding as much cash as you can.  One way to do this is to look at your expenses, including things like insurance as you might be able to save hundreds of dollars a year by switching policies.  If you’re not sure where to look first, then you can check out these customer insurance reviews first to get some ideas.

In addition, you want to look at any discretionary expenses and ask yourself if you really need the bright, shiny new thing.  Sure, cutting back will take some sacrifice but having a rainy-day fund in place will help you weather whatever storms are just beyond the horizon.

The key to this is to not set out with some vague goal in mind.  Instead, you should set small goals and then work your way up from there.  For example, if you are struggling to keep your checking account from going negative, then set a goal to end the week with $10 extra.  From there work up to $20, then $50, then $100, and so on.

The approach of using baby steps will help to alleviate the anxiety will getting you on a path towards being prepared for potential hardship.  The key is to keep upping the ante, so that your goals, while still incremental, will help you become even more financially independent.

Work Smarter

The recession isn’t here, yet, and as such you still have some time to get that extra bonus payment or to get in some more overtime before it is too late. Another way to work smarter is to look for side gig – something that won’t work you to death but will put some extra cash in your pocket.  Not only will this help you to diversify your income but it could give you a lifeboat in case the recession hits you job.

Sure, the extra job will require some hustle on your part but the additional revenue stream will help you to become ‘anti-fragile’ when things turn bad.  So, if you want to be prepared for a recession before it hits, then start working smarter today.

Another Day Older and Deeper in Debt

One of the ways that a recession hurts the most is that it makes it harder to get out of debt.  Prices tend to go up as inflation spikes and the uncertainty at work usually means that your paycheck will get smaller.  Therefore, you need to look at the ‘boom’ times as an opportunity to position yourself for when times aren’t so go.

This means paying down your credit cards to a more manageable level – if not getting rid of them all together.  Not only will this leave you with more cash in your pockets but it will also free up your available credit lines for when times get tough.

Final Thoughts  

In the end, being prepared for a recession means not taking anything for granted.  Sure, time are relatively good now and most of the news about the economy is positive.  However, the smallest things can trigger a recession – just look at what happened to the stock markets when Trump announced he was thinking of introducing tariffs on steel and aluminum.  While this move might push the U.S. into a recession, it’s better to be prepared for whatever might come your way.

Picture Source: Pixabay

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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