What are the signals that sign recession on its way?
According to the economists there would be steady rise in job losses and a surge in unemployment. Many economists also monitor changes in the interest payment or yield. The finance Ministry cuts rates to make it cheaper to get loans and try to stimulate the economy. However, this means you will see rates drop on your savings accounts too. Recessions can be damaging to stocks and assets, causing them to lose value.
How to prepare for recession?
I had mentioned below tips after reading various blogs & articles on this topic.
1. Increase your emergency fund/ bulk up you savings
Emergency fund can save you from lot of stress. You want to put aside 3 to 6 months worth of your basic living expense in an emergency account in any unfortunate event it will come handy. Since recessions can be pretty unpredictable, aim to boost your emergency saving to 12 months of your essential expenses to have extra money if needed.
2. Pay off debt/Loans if any.
Paying off your debt will save you a ton of money in interest payments & put you in a better financial situations. It will also help you to put your extra funds toward bulking up your emergency savings & other financial goals. It's good idea to focus on paying off your high-interest debt before you considered ramping up on investing.
For example - If you have credit card that has a 18% interest rate, then it makes more sense to pay off that debt as soon as you can. Because if you see the average long-term rate of return on the stock market is 12% to 15%
3. Diversify your investments
Have you heard that phrase -" Don't put all your Eggs in One Basket". Well it's important to spread your investments across multiple industries & areas, so if one industry or area experience a decline, one investment decision doesn't sink your entire portfolio. If you search on google you will come across of various sectors/industries which will not fall even in recession. Such as- Healthcare, Consumer Staples, utilities, etc.
A mistake people makes is that they start selling every investment when economy dips. It's bad idea as per various financial advisor. If you are confused or feeling stuck regarding what to do it is advisable to discussed it with your financial advisor.
4. Learn how to budget & Live within your means
Now these is very important point for building wealth. Learn how to budget & determine what budgeting style works best for you. It will help you to track your expenses compared to what you earn & highlight areas where you can cut down your expense. I recommend to prepare monthly budget & work on it. The formula is simple i.e. Income - Saving - Investment = Expense. The money you have left over is the money you can use toward the things that really matter to you, like your savings & investment goals.
5. Create multiple streams on income.
Now these is the tough part. It's not that easy job to create a multiple streams of income, but it is very important. It act as a buffer in case you lose a source of income. Is there something you're passionate about doing? something you do that you get complimented on all the time? Then consider turning it into a side gig to generate some additional income. Initially it will take time but eventually it will help you out in long term.
Remember this point/ideas for how to prepare for a recession before it happens.
While you can't predict when a recession will happen, it makes sense to always be prepared. There are more thing you can google it up, but the most important thing is to take action. Living a frugal lifestyle, bulking up your savings, and creating multiple streams of income will help secure your financial future.
Awesome 👍
ReplyDelete