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5 Things You Must Do To Thrive During A Recession

A downturn in the economy may negatively impact your finances. Knowing how to plan for, and thrive during, a recession can aid in mitigating its negative financial effects. As well as offset a higher cost of living.

Reducing debt, saving money, and having several streams of income are all great ways to prepare for a recession. In addition, reducing your spending and sticking to a monthly budget help protect your finances during a recession.

Preparing for a recession is analogous to preparing for a natural catastrophe. If you live in a region prone to hurricanes or wildfires, for example, you definitely have a plan in place to keep you and your family safe if the worst should occur.

You may not know how to prepare for a recession if you have never been through one. So, we are going to share some tips with you today that will not only help you survive an economic slump, but also enable you to thrive.

What is a recession?

Simply stated, a recession is an economic decline. Consumers spend less, and firms may cut down on spending, resulting in fewer jobs and slower economic growth.

If you want a more technical definition of recession, the National Bureau of Economic Research (NBER) has it:

“A recession is defined as a dramatic drop in economic activity that lasts more than a few months and is often reflected in real GDP, real income, employment, industrial production, and wholesale-retail sales.”

Moderate and brief recessions are possible. The 2020 COVID recession, for example, lasted barely two months, making it the shortest in US history.

In the worst-case scenario, a recession might last for years. The Great Recession, for example, ran from 2007 to 2009, making it the longest recession since the Great Depression.

Recessions are bad for a variety of reasons. For example, consider the following negative side effects of recessions:

  • Companies may decide to limit or freeze employment, making it far more difficult to find work.
  • Employers are reducing pay increases and promotions, limiting your chance to earn more money.
  • Banks make borrowing money more difficult if they are concerned about clients defaulting on payments.
  • If the stock market downturn creates or causes a recession, your investments may temporarily decline in value.
  • If a recession is followed by rising inflation, some prices may rise.

Recessions are milder than depressions, which are global economic downturns. A recession is also not as destructive as stagflation, which is defined by slow economic growth, rising prices, and high unemployment.

5 Ways to prepare in order to thrive during a recession

Recessions are characterized by unpredictability. It is impossible to predict when one will begin or end.

Being prepared for a recession will make it easier for you to survive one if it occurs. Plan for and safeguard your finances during a recession with these five recommendations.

Make a budget

Prepare for a recession by making a budget, if you don’t already have one.

Budgets are simply plans on how to spend your monthly income. To determine how much money you have left or how much you may be overspending, you add your revenue and subtract your expenses. 

People who have already retired or who plan to retire in the near future should take this into account.

Evaluate how much you spend

Take a look at your monthly expenses. To prepare for a recession, create a budget and then stop spending money on items you don’t need.

You don’t want to waste your money on items you don’t need if you have less money because of the recession. There are ways to improve your finances by trimming the fat.

You can do it with a great app. Trim Financial Manager is a personal finance solution that allows you to:

  • Assist in the elimination of costly bank costs.
  • Stop paying for items you don’t desire.
  • Change the conditions of your payments so that you pay less and save money.
  • Reduce the APRs on credit cards with high interest rates.

Set aside money for emergencies

Implementation plans are essential. Preparing for a recession by putting extra money into an emergency fund is a good idea.

According to the rule of thumb, emergency funds should cover three to six months of expenses. In spite of this, many Americans have run out of emergency savings sooner than expected as a result of the COVID-19 epidemic.

Depending on the individual, the amount of money saved for emergencies may vary. Finally, you should determine how much you should save based on your financial situation, which includes:

  • How many people’s money do you manage?
  • The total amount of money earned by your entire family.
  • How much you spend each month and where you might be able to save money if necessary.
  • Your job stability and how easy it would be to locate a new employment if you needed to.
  • Once you’ve decided how much you want to save for an emergency, it’s critical to keep the money in the correct place.

Eliminate your debt

To make your budget less tight in a recession, it makes sense to pay off as much debt as possible.

There is no magic way to pay off debts. Instead, it means using a few simple but effective strategies, like:

Debt with high interest rates should be paid off first.

Getting rid of bad debt, like credit cards, should come before getting rid of “good” debt, like a mortgage.

If you want to get ready for a recession, you might start by paying off the loan whose interest or fees are costing you the most. You could also pay off the one that bothers you the most or keeps you up at night.

These ideas can help you come up with your own plan to pay off your debts:

  • Check your budget to see if there is any extra money you can put toward your debt.
  • Write down the order in which you want to pay off your debts.
  • Based on how much you pay each month, make a plan for when each loan will be paid off.
  • If you can, you might want to pay every two weeks to save money on interest and fees.
  • If your lender gives you a discount if you pay your student loans or car loans automatically, you might want to do that.

Have a financial advisor review your portfolio to help you thrive during a recession

To increase your wealth, you must invest a portion of your funds. The difficulty in preparing for a recession is that the markets may be volatile.

If you are worried about how to survive a recession, it does not mean that you should sell your investments. Nevertheless, you should be aware of where your funds are and what you own.

Diversification, or the ownership of a variety of investments, is essential for surviving economic fluctuations.

You wouldn’t want your entire portfolio to be comprised of a single stock or a single industry, because you will not be able to compensate if this investment suffers a loss.

A financial advisor can advise you on how and where to protect your money during a downturn.

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