How to Prepare for a Recession

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1 year ago

When there is a recession, you should immediately start building additional income sources. That’s because when there is a recession, there is inflation and the price of commodities will increase. In order to manage the same kind of lifestyle, you need to earn more. While you might not get a salary hike from your company, you can do a side hustle to earn extra money. If you already have some savings, a recession is also a time to invest because the market is down and you will be able to stocks and equity for a lesser price. You will also have to downsize your life and cut your expenses substantially.

How to Prepare for a Recession

Recessions are frequent in the market, therefore, you need to be prepared for the recession. Here are a few things you need to do when you see recession is inevitable.

Save for Emergency Fund: When there is a recession, you can either lose your job or experience a cut in your payroll. Therefore, you need to set up an emergency fund. This fund will help you survive when you lose your job or get a pay cut. Save at least 3 months of monthly income s that you can survive 3 months without a single penny income. In the meantime, you can continue looking for employment opportunities or become self-employed.

Create a Budget: Budgeting helps you to manage your money property. You need to distribute money for your necessities, wants, savings and investments. Budgeting will also help you identify where you need to spend more money and where you need to stop spending. When you create a budget, it will also be easier to pay your debt, if you have any. Budgeting will help you to analyze your current financial situation so that you might be able to prepare yourself for recession.

Invest and diversify: Investing means buying assets that will generate additional income. Diversifying means buying assets in different markets.

Strategies to Cope With Recession

The world is going through a recession. It started with Covid Pandemic in 2020 and heightened with Ukraine-Russia War at the beginning of this year. You might have how survived Covid, however, if you do not take the right measures, you will not be able to survive the recession.

What exactly is the recession doing to you?

Fuel prices have skyrocketed, food prices have gone up, commodities have become more pricy, your income has reduced and the value of money has also reduced (because of inflation).

What do you do now? What strategies should you use to cope with a global recession?

You need Cashflow Management skills to manage your money even during normal times, but this skill becomes more important when there is a recession.

What is Cashflow Management and how do you manage your cash flow?

Cashflow Management means managing your money, you keep the track of your income and expenses, and you try to reduce your liabilities and expenses, and focusing on buying assets and investing in money. With Cashflow Management you are making a budget to manage your money.

During the recession, the cost of living is rising, however, income is reduced. Therefore, every penny that comes to you and every penny that goes away from you should be tracked. The money that leaves you should have a specific purpose.

Things You Can Do to Take Advantage of Bearish Market

You might have noticed that the market is falling since the beginning of this year. It has been reported that about $1.4 trillion in wealth has been completely wiped out from the face of the earth. Billionaires like Jeff Bezos and Elon Musk have lost over $50 billion worth of wealth.

You might have also experienced some loss in your wealth, however, you as a common man should not worry much because if you implement certain strategies, you can build your wealth.

Save money in a high-yield saving account. How much you might ask? Just enough for you to get going for 3-4 months in case you lose your income stream. Depending on your age, family, and health conditions, you can even save enough for 6-12 months, but never save a lot of money in banks.

Stop spending money on things that are not helping you to live or not helping you to make money.

Build a new business or income stream that will thrive after the market improves. When the market is down, it is a great time to plan a new seed.

Build emergency funds and use that funds to finance your emergencies or investment.

Invest in 5-10 assets that match your risk tolerance level.

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I am one of those people who aren't ready to face this and feel idiot about investing. But, you're right that people should be more observant of their finances.

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