How To Prepare For The Next Recession
An economic recession is defined as an economy which shrinks, rather than grows, for two consecutive quarters. Recessions are actually a normal part of the economic cycle and happen with regularity. However, most of the recent ones have been short-lived, unlike the one we’re still recovering from in 2010.
I’m sure many people could talk about the lessons they’ve learned during this recession. Some would say they were dumbfounded that a recession of this magnitude could actually happen since it never had during their lifetimes. Though everyone had heard about the Great Depression, they thought it was a thing of the past.
Many people would say they lived beyond their means, counting on their jobs continuing and their home values increasing. They didn’t know the bubble could burst, leaving them unemployed and owing more on their homes than they were now worth.
The following are some expert tips to help you prepare for the next recession. Most of them are just good common sense, taking into consideration what many have learned during the present recession.
1. Spend some time with your personal finances. Are you spending more than you make? Track where your money goes each month and compare it to your income. If you are working you should be making more than you’re spending. If you’re not, you need to align your lifestyle to your earnings and have money left over to save.
2. Check your job stability and make a change if necessary. The jobs most likely to survive a recession are in the fields of health care, government, and education. Those more at risk are any in the building industry and jobs that rely on excess cash in the economy, such as luxury goods.
3. Get rid of debt and begin to save. The old adage about putting back for a “rainy day” certainly applies here. Unsecured loans, like credit cards and lines of credit, should be the first to go. Even small sacrifices now will have big payoffs later. It’s really important to have a fund for emergencies.
4. Diversify your income. Create a buffer for yourself by having different income streams (i.e. rental property, stock dividends, etc.) so in case you lose your job there is some income to keep you afloat.
5. Do more at work. If you think you could possibly lose your job, make yourself useful to the company you work for. Add skills so you will be more valuable to your employer.
6. Downsize vehicles and sell luxury items like boats and jet skis. During an economic downturn you will more than likely not have funds to enjoy these things and they could supply needed cash.
7. Learn how to do things around your home that you normally pay others to do. Prepare your food rather than buying high-ticket convenience foods. Get back to the basics of trading and bartering with friends and neighbors for services you aren’t qualified to do.
8. Have a long term food storage pantry, filled with enough non-perishable food to last six months. Consider gardening to raise some of your own food. Buy local produce and farm foods to insure a local source of food.
9. Balance your portfolio. You will feel the effects of the recession in your portfolio but try not to panic. Have a long-term view and realize that recessions are great times to purchase long-term investments.
10. Look for big savings items. Now might be the perfect time to refinance your home or car at a better rate when rates are low. If your house is over 40% of your income or your car is over 20% it is time to move to a cheaper house and car.
And, most importantly, keep the faith. Nothing lasts forever. The pendulum swings, again and again. Focus on and enjoy the many wonderful pleasures that money can’t buy!
Sources: community.stretcher.com/preparing-for-recession.aspx; How to Prepare for a Recession, eHow.com; Preparing for a Recession, eHow.com. Photo from www.morguefile.com/alvimann