How to Get Ready for a Recession: Preparing for an Uncertain Economy
Table of Contents
*All information in this post is my opinion and gathered through my own research. Please do your own research before following any information in this post. This is for information purposes only. Also consult your doctor before taking any supplements*
**This post contains affiliate links. I receive a commission from any purchases that are made. This in no way changes the price for you. I am paid directly from the manufacturer.**
When Economic Doomsday Arrives!!!!!!
Some folks will tighten their teeth, grip their chest, and race to the bank only by reading the first line of this blog.
An economic collapse is inevitable with this insanely high inflation and rising interest rates looming around as well as a massive decline in the dollar’s purchasing power. What more do we need to know a possible meltdown of the economy is here?
Lets dive into how to get ready for a recession……
What exactly is an economic collapse?
You kind of want to admit that you were thinking about it.
The brainy ones define “economic collapse” as “a breakdown of a country’s, region’s, or territory’s economy that often occurs after a period of turmoil.
An economic collapse occurs when a severe form of an economic contraction, depression, or recession begins and can endure for years, depending on the severity of the circumstances. ”
But, to put it simply, an economic collapse occurs when “the economy is in a funk.”
GDP (gross domestic product) is the total worth of all products and services made and produced by a country’s economy. Typically, GDP develops slowly but when the GDP of a nation is negative for an extended period, say six months or more, we can say then all hell has broken loose.
According to available data, America’s GDP was -1.6% in the first quarter of 2022 and -0.9% in the second quarter. So,we’ve had two-quarters of negative GDP growth, which is the precise definition of a recession.
Any moment the numbers get worse than this could prove we would have an economic collapse on our hands.
Are We Going into an Economic Collapse?
An economic collapse is similar to a hurricane. It’s difficult to anticipate when it’ll strike and how much damage it’ll cause.
Just like the hurricane, instead of fallen trees and destroyed houses, the aftermath of an economic collapse usually looks like this: lost jobs, a plummeting stock market, insolvent businesses, and a total economic shutdown.
You may not personally feel the effects of a mild recession (though you will undoubtedly hear about them in the news daily). However, an economic catastrophe will certainly spark your interest.
The last economic meltdown in the United States came and passed in a flash in 2020 when the entire world shut down in reaction to the coronavirus outbreak. The National Bureau of Economic Research declared a recession without waiting for two-quarters of negative GDP growth. (Yep! the bureau is in charge of informing us when we’re in a recession.)
But, as with hurricanes, being prepared and not freaking out are the keys to surviving a collapse.
How to Prepare for an Economic Collapse
With inflation on the rise and our retirement assets declining, an economic collapse feels more real than ever. It is reasonable to be concerned right now.
But it’s critical not to succumb to the widespread fear. Instead, devote that energy to ensuring that your funds are in order.
At the end of the day, you must have your own house in order and ready to withstand the collapse. That will be far more important than what is happening on Wall Street or in the White House.
So, whether there is an economic collapse or not, the tried-and-true approach to save you from a financial hurricane is to live on a budget, pay off debt, save for emergencies, invest for retirement, and live.
Live on a Budget
A billionaire framer told his kid to work and bring him $10,000, and the son just asked his mother for the money. He gave the money to his father, who simply threw it in the fire. The youngster was surprised and asked his father why he had done that but received no response.
Again, the father told his son to go to work and bring back $10,000. This time, the boy chose to work for it. He gave the $10,000 to his father after working and excavating all night. The father threw it into the fire, and the son raced after it and pulled it out of the flames immediately.
This is how many of our financial statements arrive each month. We work so hard for our money only to toss it away because we have no plans for it.
A budget is just a plan for tracking where your money goes each month. A budget gives you more control over your spending and makes it easier to save for your goals.
There is no such thing as a budget that accommodates everyone. The trick is to devise a strategy for tracking your spending patterns. A budget serves as a safety net against the onslaught of expenses. The following steps will help you create a financial budget:
Step 1: Determine Your Net Income.
Net income is your take-home pay after taxes; pension and health insurance payments (depending on your company) are deducted from your gross salary.
Focusing on your total earnings is unlikely to assist you in developing an appropriate budget. It may cause you to overspend because you assume you have more money than you actually have.
Step 2: Set realistic and attainable financial goals.
Now that you’ve determined your net income, the next step is to decide what to do with it. Should I go out to a party? Do I go on a shopping expedition? Is there a business in which I would like to invest?
Is there anything I’d like to purchase, such as a house or a car? Savings, spending, investment, and other financial plans, such as retirement, are all protected by economic goals.
It could be for the short term, the medium term, or the long term. Whether you are a salary earner at the end of the month or work as a freelancer, you should match your goals to your earnings.
You must have a precise aim that you intend to achieve in mind. These objectives are separated into long-term and short-term objectives. Setting goals allows you to create a personalized budget for your requirements and desires.
If you take the bus to work daily, saving money for transportation expenses is more significant than paying for an internet streaming service.
Financial objectives allow you to direct your spending toward specific requirements and aspirations.
These objectives must also not be vague or unreachable. It could be an investment or a retirement savings plan. On the other hand, learning to set realistic goals will benefit you in the long term.
Step 3: Develop a Strategy
Because analyzing and tracking your costs is where it all comes down to, this is the most critical phase in budget creation. A plan will show you where you’re wasting money and where you might be able to save money.
Begin by noting your spendable income (fixed expenses) (monthly bills such as rent, utilities, food, car payments, or transportation costs). Next, list your non-spendable income (variable expenses), which includes monthly expenses like clothing, entertainment, and presents.
Step 4: Be Consistent.
The most challenging component for most people is learning to tailor their spending to their budget. To conquer your finances, you must stick to your plans. You will save yourself if you know to follow the guide.
Pay off your debts
If you’ve ever been on a treadmill, you understand what it’s like to be in debt. You make a small payment on this loan and a small payment on that credit card each month.
And you quickly realize you’ve gotten… nowhere. Debt is a fantastic tool for generating wealth; it can impact your monthly net income when used effectively.
You must acknowledge that your ROI after deducting taxes from your earnings is not what you desire. The first step is to visualize your financial goals and what you need to do to get out of this awful debt.
Ignoring the warning signs and borrowing more in the long term may be risky. Recognizing this, alerts you to the poor situation and may inspire an idea in your mind about how to deal with it right now.
Without a plan to combat this obstacle after assessing the circumstances and talking with a debt advisor, you may as well never try at all. Adopting a strategy is critical in tackling the issue.
And remember, no matter how scared you might feel if you lose your job, don’t take on more debt. You’re already in a rough patch, and debt will only make it worse and leave you in a pinch down the road.
Save for Emergencies
People often have mixed feelings when they hear the word savings. They have either had negative experiences while saving, leading them to feel it is impossible, or they have heard stories of individuals who had so much saved up and died without taking any of it to the grave, leading them to believe there is no reason to continue saving.
“Gold cometh readily and in increasing measure to any man who will put forth not less than one-tenth of his income to establish an estate for his future or that of his family,” according to the author of “The Richest Man in Babylon.”
So, if you had a cake and ate it, the cake is no longer in your stomach, correct? Most people approach saving in this manner. They want to have their cake and eat it too, and when they realize this isn’t possible, they grow dissatisfied with saving.
Setting aside a portion of your earnings for a specific reason, such as an emergency fund, significant purchases, or eventually having enough to develop wealth, should be the essence of why you should save. Your emergency fund is a barrier between you and life at all times, not just during a recession or an economic collapse.
To have a better understanding, consider the following:
1. Low-risk saving strategies A low-risk saving plan entails setting aside small sums of money each day, week, or month to ensure you can meet your goals, particularly short-term ones.
And several savings plans can assist you in accomplishing this, such as a high yield savings account (HYSA), fixed income securities (e.g., treasury bills, bonds, etc.), which earn fixed or inflation-linked interest for the term of the investment and provide promising returns with a minimum investment of $1000.00.
2. Medium-risk saving plans: If your risk tolerance is such that you can take a hit without being too shaken, you may be a medium-risk taker, and mutual funds are one of the best places to start saving.
They are a method of diversifying your investments. Consider this an illustration of how this fund operates. Assume an investor wishes to invest some of his retirement assets on the New York Stock Exchange but does not have the time to research individual stocks and develop a diversified stock portfolio.
Instead, he decides to put his money into a mutual fund. This enables the investor to purchase a single investment, similar to a complete stock portfolio. ETFs are another example.
3. High-risk savings strategies include stocks, cryptocurrency, and foreign exchange. You should consult a financial specialist because saving to invest in this entails high-risk management.
Investing for Retirement
When the stock market falls, you may be tempted to sell your assets at a loss and invest the proceeds in something safe to weather the storm.
But hold on, take a deep breath, and don’t do anything out of fear. Investing is allocating resources to something to gain more significant benefits. Investing is about how much money you’re willing to put to work, not how much you earn.
Investing is a roller coaster ride, and the only people who get wounded are those who leap off. After setting money aside for short-term goals, it may be time to consider investing for the long term by acquiring individual stocks, bonds, mutual funds, or other investments.
Mutual funds are currently having a massive clearance sale. That implies you’ll buy stocks through mutual funds at meager costs if you keep investing.
And when the market recovers (which it will), you’ll still be on the roller coaster, beaming as the enormous profits from your “clearance sale” investments roll in.
Above all, remember that investing for retirement is a marathon, not a sprint! And don’t take your money out justbecause some guy on the news instructed you to.
Get Your Own Personal Finances in Order
Remember that a collapse indicates that the economy as a whole has been in a slump for some time and can no longer withstand any more blows.
However, your daily financial actions significantly impact you more than the talking heads on cable news say.
How have the last six months been for you? Consider this: Have your finances been in a slump due to inflation or another factor?
If you’ve had a rough break, this is the time to get serious. Use the current recession as motivation to be more deliberate about how you manage your money.
You ‘got this!
Check out this other helpful article:
