Having recession-proof finances might seem like the works of daydreamers but it is a goal you can aim for. Nothing is perfect and any preparations could seem small. However, starting early and being consistent with your plans help improve the chances of reaching your goals. If your mindset is already making you doubt your capability to prepare your finances, you are off to a bad start.
One of the things that can help is having a positive state of mind and believe in yourself. It will be a lot more challenging when you are your worst critic. Going through one recession in one lifetime is already hard enough. Having to experience two in just over a decade can be challenging to recover from a financial point of view.
What are the dangers of getting into another recession?
If you still remember the results of the most recent recession in 2008, you know that it can wreak havoc on your finances. A lot of people lost their job, their livelihood, and even their homes when the housing bubble collapsed. As the problem has been brewing over a long period of time, it also took a while before people started to get back up on their feet.
It is not easy losing your job, your house, or even both. You can find yourself moving back in with your parents and desperately trying to look for whoever is hiring. Job hiring was also tough during the recession since a lot of companies are tightening their belts as well. These are just some of the dangers of going through another recession.
This is why it is important that you look for ways to have recession-proof finances in order to help you weather through the storm. Here are a few ways to help you strengthen your finances.
Is your emergency fund adequate to support worst-case scenarios?
Recession brings out the worst-case scenarios you could be preparing for and your emergency fund needs to be up for the challenge. You cannot rely on outdated financial information where you based your emergency fund from in the past since there could have been a lot of changes since then.
The best thing you can do is sit down and take a close hard look at your current budget. This can give you an idea of what your expenses are at present and make sure that you are preparing for the right amount of money. This is because planning for emergencies has a lot to do with what you are spending and paying for every month.
Your preparations should be able to cover your monthly expenses for an extended period of time if our income is compromised. This way, you move forward with your regular payments without getting into too much debt. More importantly, you also get to provide for your basic needs without stressing where to get the money for it.
Taper down risky investments
One way to build recession-proof finances is to lower down potential exposure. Look at your investments and try to understand the risk involved with them. Focus on the high-return yet high-risk investments and determine how you can lower down the risk you are taking. It can be transferring to low-risk yet low-return investments for the time being.
You can change your investment portfolio from risky stocks to relatively low-risk bonds. If you have money in high-risk start-ups, revisit that portfolio and evaluate if you can handle the risk. If not, you do not have to pull everything out. Just lower your exposure and redirect it to safer investments so you can protect your money.
It is also a good idea to check if you have lent money to people around you who might be behind in their payments. It is really a tough situation to be in when people close to you start borrowing money and fail to pay you back. If you see that they are already doing well financially, check if they can pay you back the money. You can put this amount in your emergency fund to further bolster it in preparation for challenging times.
Look for additional sources of income to build recession-proof finances
One of the best ways to have recession-proof finance is to make sure that you are bringing in more funds every month. This is important as Forbes shares that recession is a normal part of life. The first place to start is to find out how you can get a salary increase at work. This usually comes with a promotion so stay on that track. Keep an eye on your performance to increase your chances of going up the rank.
You can also look at your hobbies and find a way to turn them into income positive ventures. The good thing about this is that you will be doing something you already love doing. This will come in handy, especially during the times when you are already tired from your day job. If it comes to getting it done after a long workday, having to do something you like is a lifesaver.
It is also possible to try and put up a business that revolves around a particular industry you already know about. This significantly shortens the learning curve which lowers the risk that comes with it. It will also help if you can work together with a few people you trust so you can share the start-up cost of the business. All these are meant to help you increase the amount of income you can bring in every month. Of course, this goes without saying that you need to manage the extra funds coming in as well.
Explore ways to lower down expenses
One of the decisions that best complement an increase in income is simultaneously looking for ways to lower down your expenses as well. These two can be powerful tools to help you create recession proof finances. It can create more elbow room for you to work on your finances as you prepare for a possible recession.
As you look at ways to save money, a good idea to start with is taking on a frugal lifestyle. There are people who take this too seriously giving frugality a bad name. The idea with this is to look for creative ways to lower down costs at home. Rather than ordering take out, learn how to cook healthy and delicious food at home. Weigh the cost of paying for cable versus streaming services and see which one can help you save money.
It is also possible to try and take public transportation or even your bike to and from work. The idea is that you get to save on gas prices as well as maintenance on your vehicle. You get a bonus of getting in a daily workout in your routine. Check if you can telecommuting is a possibility in your workplace for given days. This can do wonders and help you save a lot of money if you can work from home.
It is a challenging task to build recession-proof finances but you need to seriously look into it if you have fears of another economic meltdown. It will serve as a cushion to help you get through it and if it does not come to the past, you at least are in a very capable financial situation.