The federal government’s tariffs and the ongoing trade war with China are already creating ripples in the US economy and stock market. And, if the predictions of financial experts come true, then we will face another economic recession in the next 12-18 months.
In the last recession (which happened in 2008-2009), Americans lost jobs, homes, and businesses. God knows what they will lose in the next recession if they are not financially prepared for it.
According to a survey conducted by GoBankingRates, most Americans are not financially ready for the next recession. As per the observations of their survey,
Americans have not yet recovered from the after-effects of the last recession
60% of people hit by the recession in 2008 still live paycheck to paycheck
49% of Americans are living paycheck to paycheck
68% of people don’t have any recession-proof strategy
74% of people are not prepared for a new job
Women are less financially ready than men for the next recession
The observations of the survey indicate only one thing. Once the recession hits, Americans will be in a severe financial crisis. The average American already has personal debt amounting to $38,000 excluding mortgage. Now, if a recession hits next year or later, just imagine what will happen to average Americans. Their debt load will increase even more and make a disastrous effect on the overall economy.
If you don’t wish to get into a deep financial crisis when the next recession hits the country, there are a few things you can do now to protect yourself. We will discuss them today in the next section.
How to be financially prepared for the next recession
Here are a few things you can do to be financially prepared for the next recession.
1. Get a side hustle:
No one can predict what will happen when a recession hits the country. You may have your full-time job or you may not have your full-fledged job. Both the possibilities are there. You may not have a pay hike for a long time. But the cost of living is likely to continue its upward spiral. How will you cope up with that? A side gig can help you to boost your income, save money, and pay down your debts. It will help you to survive when the economy is in bad shape.
2. Pay off your debts:
A huge amount of debt can create a big problem during the recession. If you owe money to creditors, then take steps to pay off debts before there is an economic downturn. You can either go for credit card debt settlement or credit card debt consolidation to pay back your creditors. Remember, when the economy goes sour, it becomes too problematic to pay off debts due to the following reasons:
Your income is stagnant
The cost of living is high
Reduced hours at work
Try to pay off loans that have high-interest rates first. Once you have paid off credit card debts, start taking care of other debts like student loans. If you have federal student loans, then you can opt for Income-based repayment plan or other student debt relief programs.
3. Reduce your expenses:
When you have money in your bank account, your hands itch to buy a new pair of shoes or a new video game or a new smartphone. But do you need all the items? Think carefully and cut down your expenses because you need to save money now. Keep the unspent money in your savings accounts so that you can use it when there is a financial crunch.
Check your bills and subscriptions of your last few months. Find out the categories on which you’re spending the maximum amount of money. If you’re spending too much money on luxury items or parties, then it’s better to reduce your expenses in these sectors. Stop spending money on unnecessary items so that you can boost your savings gradually.
4. Review your asset allocation:
It’s high time to analyze your asset allocation. If you’re on the verge of retirement, then avoid taking high risks. If you have invested a huge amount in stocks, then you can sell them and book profits when the economy is stable. Analyze your goals and balance your risk tolerance to avoid problems in the future.
5. Review and update your resume:
During the economic recession, most companies take steps to cut down expenses to mitigate business lost. The first cost cut happens on salary and other employee benefits. Some companies are even forced to terminate the bottom performers to combat the loss.
Even if you don’t have any plan to change your job, then also I would suggest you to update your resume. If you get a job offer in a financially stable company, then you can switch over now. And, if you don’t get a better job offer, then also, it won’t be a problem. You can check your market demand.
Final notes
Money is tight during the recession. Income is stagnant and savings are minimal. So, save as much money as possible now. Set up an automatic debit system so that a portion of your income is directly transferred to your savings account. You can access and use this account during an emergency. Believe me, this cash will be your savior when the recession hits the country.
If your current monthly expenses are $3000, then you should have a minimum of $12000 in your savings account. This is your financial safety net. If you have no income for 4 months, you can manage your financial expenses with this money.
