It was not too long ago that the economy was powering ahead at full strength. However, when COVID-19 made its appearance, investors became unsure about the economy and stocks began to plummet. Plummeting stocks led to weakened currencies, which in turn has put the globe in danger of a recession.
A recession occurs when a country experiences two or more consecutive quarters of negative growth. While nobody knows for sure whether we are heading for a recession, it is a good idea to be prepared. Here is how you can prepare for a recession:
Ensure you have emergency funds
Setting up an emergency fund can be challenging, especially if you don’t earn a high salary. It is recommended that your emergency fund contains enough money to cover at least three months of expenses at any given time. However, when a recession is on the cards, it might be better to try to have up to a year’s expenses saved into a separate account.
An emergency fund provides you with backup for in case you or your partner loses your job, or if you run into trouble and need to cover unforeseen expenses. The emergency fund ensures you don’t have to incur unnecessary debt through borrowing money in an emergency situation.
Watch your spending
To set up a successful emergency fund, you need to know how much you spend each month. While you may have a general idea of the amount based on how much you earn and how much is left over each month, monitoring your spending can help you save.
When you track your spending, you can set up a budget. A budget helps you analyze your expenses to find unnecessary purchases and wasteful spending. You can also use a budget to plan ahead, ensuring you have enough money to survive emergencies.
Build your credit
While a recession seems like the worst time to care about your credit score, you must have good credit in case you need to take out a loan or purchase a house. A recession is a great time to purchase a house because the market weakens which usually results in the prices dropping.
Since the time of the recession may be near, you would need to find ways that you can build credit fast. Kikoff offers the opportunity to build credit at record speed without much financial burden. This might be the break you are looking for, considering other options can lead to long-term debt and high repayment costs.
Make some investments
If you are already invested in stocks, you should not panic and sell them. If you are not currently invested in stocks, it is a good idea to buy into some of the stocks now while their price is lower. It is important to keep up your investments throughout the recession since stock prices are likely to stay low during the recession.
After the recession ends, stock markets will begin to recover and you are likely to see your stocks recover. This long-term commitment to an investment can assist you in paying off debts accumulated during the recession.
Pay your debts
Before the recession arrives, you must pay off as much of your debt as possible and build a cash reserve. If the recession has a negative effect on your employment status, resulting in you losing your job, your debt will increase significantly while you are unable to pay it.
A faster debt payoff means you accumulate less interest. If you can pay off all your debt immediately, it frees up some money that you can use to contribute to your emergency fund.