How to survive a recession?
We in the second half of the chaotic year 2020. The covid19 pandemic is far from over and it has created huge health and economic crisis, Unemployment is rising, businesses were shutting down, the stock market is highly volatile, on top of it we are going to have a recession and few countries they are already in one. A lot of things tend to happen during a recession and we are uncertain about the economic recovery, whether a V shape, L shape, or W shape recovery we don't know and it is high time to take action.
A country is said to be in a recession if it had two consecutive quarters of economic contraction i.e, negative GDP growth. By preparing adequately, cutting costs, and making sure you still have some income coming in, you can emerge out of a recession just as strong as you were before it. So here is what you should do to survive a recession.
To prepare for hard times you must spend accordingly, cut your excessive spending, get rid of subscriptions and memberships which you don't use. Making a budget and sticking to it is an important thing to do to improve your personal finance. because if you want to reduce your spending, you must know how much you spend in the first place. You can't improve what you don't measure so, record your spending, set a target, and stick to it. Follow the 50/30/20 budget rule. i.e, spend 50% of your income on necessities such as bills, rent, groceries, internet, etc.., 30% on wants such as entertainment and hobbies, and 20% on savings and investments for difficult times like the one we are experiencing now. If possible allocate more to savings and investments.
Set up an emergency fund
An emergency fund is a money that is set aside for uncertain times such as, unexpected expenses, and there are high chances of you getting laid off in a recession, which is why you should have an emergency fund. Ideally, an emergency fund should have enough money to cover at least three to six months of your living expenses. You might have calculated your living expenses for a month and now multiply it by 3 and that's how much you need for 3 months now, set aside a part of the income to the emergency fund regularly. once you got 3 to 6 months of living expenses got covered you can invest the rest of money, which will help you thrive after the recession.
Pay off your debts
if got debts, you should try to pay it and you should always work to be debt-free, but when a recession is coming it's even more important to do so. If you have got a number of debts you should first focus on paying off the one with the highest interest rate. Once you get rid of debts don't take a new one and avoid taking a bad debt. Bad debt is a loan that you get for buying things that don't make you money taking a bad debt creates an unhealthy financial situation. on the other hand, good debt can be considered as an investment. Like a loan that you take to start a business.
Start a side hustle
In a recession, there's always the chance that you might lose your job and your primary focuses should be to keep your current job and prove how valuable you in the workspace. Be ready to enter the market again if you lose the job. Learn new skills or whatever is relevant in your line of work and update your CV. However, you can also increase your financial security by creating separate income streams. A side hustle, it is never been so easier to start one. It will give you a fall back if you lose your job. Try freelancing with the skills which you are good at, learn the skills that are in demand, and freelance in sites like Fiverr and Upwork or consider blogging and setting up a youtube channel, which you'll be able to monetize later on.
You might hesitate to invest during the recession because of the overall market volatility. it is common to do so, but history has shown us that every recession until now is followed by a long-term upswing, and the stock market recovers to the level higher than ever before. Just keep investing and don't time the market you might fail terribly well, sometimes you might be lucky. Follow the dollar-cost-averaging method. where an investor will keep investing regularly regardless of the price of the security and market volatility. It is a great way to invest because if you invest the same amount regularly you tend to buy more when the market is down.
Diversify your investments and take a long term approach to invest
During a recession, stock prices will usually fall dramatically, which means your investments could be hit hard. That's why you shouldn't put all your eggs in one basket. While many companies, and their stock prices, will recover out of the recession and history has shown us that so, don't freak out and check stock prices all the time. Businesses with poor business models and management will lose in the recession and you might lose some money if you have invested in them. You can reduce the risk of this happening by spreading out your investments. Think about buying bonds, investing in securities from other countries, investing in precious metals, a portfolio of stocks, or an index fund rather than individual stocks. Don't do risky short-term trading unless you know what you are doing. just buy and hold for a long period of time.