In the global economy, there are always highs and lows. And when a country or the world is hit with a recession, it can be tough to survive. We can often tell when a recession is about to hit. However, we sometimes ignore the signs and then repent later. Ideally, your safeguarding should start the moment you get the hint that a recession is about to hit.
Here are five tactics to make your finances recession-proof:
1. Switch to a Frugal Lifestyle
We tend to spend more when we have more. But this lifestyle inflation is very dangerous in the long run, especially when the economy is hit with a recession. And developing a frugal lifestyle requires practice; it does not happen overnight. So, don’t wait for the next recession to occur. Instead, modify your lifestyle changes from today itself.
Observe your spending habits for a month. Identify the must-haves and the good-to-haves, and see where you can cut down your expenses. See the products which have cheaper alternatives, and see what you can replace. Gradually, you will become thrifty with your spending habits, and this habit shall be beneficial when the recession hits the economy.
2. Build an Emergency Fund
Savings is an integral part of personal finance management. No matter what, it is a necessity that you save a certain portion of your income every month and add it to your contingency fund. You may be tempted to use this fund during demanding times, but discipline yourself not to touch this fund unless there’s an actual emergency. Instead of using this fund for your regular expenses, you can opt for a credit line that offers flexible repayment options or a short term personal loan, depending on your requirements.
3. Pay Down Your Debt
The higher your debts, the more loss you will suffer during a recession. So before the recession hits, identify all your debts and try to consolidate them to pay them back. Most often, you may not have the liquidity or cash flows for repaying all the debt separately. Then you can choose a personal line of credit or a personal loan to help you get rid of your debt. This will help you save money in the long run with lower rates of interest too.
4. Hone New Skills
Instead of getting upset in a crisis, we should upgrade ourselves. If you see a recession coming up, diversify your knowledge base, and learn new skills that will help you earn income if you lose a job or if your business suffers losses. Several online learning platforms help learn new skills and add to your knowledge base.
5. Hedge Your Income Sources
When you have multiple income sources in a recession, it helps hedge your earnings and diversifies your risk of losses from a particular source of income. Be tactful while choosing multiple sources of income. You can study the recession-proof sectors, like education, medical, etc. and see how you can leverage these sectors based ontheir skills. You can even pull off some extra hours before a recession to make extra income in additional sectors. That way, your finances will remain secure due to risk diversification when a recession hits.
About the Author
Lily Tran is a content writer, working for MoneyTap, who writes about all things Finance. Her passion for credit, debt, loan & investment drives her to help readers get an insight about everyday finance.
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