Economists are saying that we are due for another financial crisis. The National Association of Business Economics conducted a survey among economists and half of them said that they think the next recession will start late 2019 with two-thirds saying that we will reach a slump towards the end of 2020.
This does not make them pessimists. The market does have its ups and down. It just so happened that we are already scheduled to go down. There is no stopping it. We just have to learn how to ride it out.
But the question is, do you think you have what it takes to survive it?
You may feel like you are secure right now. However, once that recession hits, do you think you can maintain your financial security? If the experts are saying that there is a looming financial crisis, you need to make sure that you can survive it. If not, you might just lose everything that you have been working hard to achieve so far.
Signs you can survive a financial crisis
Before that financial disaster happens, you need to analyze your current situation to see if you have what it takes to survive it. Here are the signs that will indicate if you can survive the next recession.
You are not living from paycheck to paycheck
If you have extra money after all your monthly expenses are paid for, that is a good sign. In case you are faced with an emergency, you have room in your budget to accommodate it. If you have to increase your savings to prepare for a looming financial crisis, you can afford to do so.
When you are living from paycheck to paycheck, it simply means you barely have enough to get you through each month. You do not have extra money to save for emergencies. Even if you have an existing emergency fund, this can quickly be depleted after a couple of unexpected expenses. Since you do not have extra money after all your expenses, there is no way for you to replenish what was spent on your emergency fund. This is why you need to get yourself out of this situation if you want to survive the oncoming recession.
You have enough in your emergency fund
The emergency fund was mentioned earlier – but it is not enough that you have it. You have to make sure that the amount in it is sufficient for your needs in case of a crisis. That means having between 6 to 9 months worth of expenses. If you spend $4,000 each month, you need to have between $24,000 to $54,000 in your emergency fund. Some people choose to bring that higher to 12 months worth of expenses.
According to reports, a quarter of Americans admitted that they do not have anything in their emergency fund. This is roughly 55 million Americans who will be in a lot of trouble if the prediction of the economists turns out to be correct.
You have other sources of income
There are many options to open other sources of income. It can be through investments. Or it can be through a passive income. Having a second job will also count as another source of income. If you have any of these, that you are good to go. You have a higher chance of surviving a recession in case it happens.
What caused problems during the last recession was the fact that a lot of people lost their jobs. This is actually beyond your control. However, that does not mean there is nothing that you can do about it. You can make sure that you have other sources of income. That way, in case you lose your job because of the financial crisis, you are not without an income each month.
Your debts are under control
Surviving a financial disaster does not mean you are without any debt. It is possible to survive it as long as you have your debts under control. This means it is paid each month. But beyond that, you also have a backup plan for it. In case something happens to your income, you have a plan in place to ensure that your debts will not destroy your fragile position that you are in because of the financial crisis.
To be able to do this, you need to put your finances under control. You need to constantly check your budget to ensure that it is aligned with your current financial situation, goals, and priorities. Focus on your debt payments. Make sure that it is not in a position that will compromise your financial situation when a crisis comes.
Your financial goals are on track
Having goals will always be a good thing. When your financial goals are on track, that is a good indication that you are in a good position to survive. Your goals will end up helping you through the tough times ahead. It can be extra money that can help support you in case something happens to your main source of income. Or, it can be a financial improvement that will strengthen your position. Either way, goals indicate that there is progress in your personal finances. If there is a looming crisis, this will help serve as a buffer so you will not succumb to the tough times ahead.
What to do when a financial crisis happens
Whether you are prepared or not, there are a couple of things that you need to do once the financial crisis happens.
Make sure all your sources of income are secure
Start with your primary source – your job. Check if there is a chance that the company you are working for will downsize. That could mean they will be laying off some people. You need to make sure that you are not one of them. If you have invested in other sources of income, you have to revisit all of them to ensure that they will continue to earn. If not, you should analyze how it will affect your monthly cash flow. Once you have this data confirmed, you might want to check your budget to make the necessary adjustments.
Review your budget plan
You need to check if the budget is still aligned with your financial situation. Will it require revisions because something will change with your income? If there is a crisis, you need to tighten your budget. Any expense that you can live without – try to get rid of it for now. Make sure you list your priorities and focus on that. Anything else might have to be postponed if not eliminated. Whatever extra money you will get should be put aside for savings. That will help strengthen your financial position while the crisis is unraveling around you.
Be smart with your spending
Regardless if there is no change in your income and budget, it is still important to spend your money wisely. Now is not the time to splurge on something unnecessary. It is also not the right time to make an unplanned vacation. You need to make sure that any spending, if not for necessities, should be for something that will improve their financial situation. If it does not satisfy any of the two, then do not go through with the expense.
Keep an eye out for financial opportunities
Finally, if there is a financial crisis, you might want to look out for any opportunities that you can grab. If you know what you are looking for, you will find that there are golden eggs amidst all the economic chaos. For instance, experts are saying that people should be ready to invest in real estate if the bear market happens. If you do not understand what that means, a bear market is when the prices are falling, causing investors to panic and sell their investments to avoid losses. While the initial reaction is to sell, you need to do the opposite. You have to take advantage of the lower prices to buy them. When the price starts to climb towards the bull market, those that you bought will rise in value too. In effect, your personal net worth rises too.
Consider all of these if you really want to survive the financial crisis. Just remember that things may be bad but it will get better eventually. You just have to learn how to ride it all out.