According to the National Bureau of Economic Research, a recession is a “significant decline in economic activity spread across the economy and lasts more than a few months.” There will be increasing layoffs, employment rates, declining trade, and industrial activity.
Recession not just hit businesses, but individuals as well. When businesses struggle to keep running, they may take the decision to cut down the employees. So, the unemployment rate increased.
Whether a recession hit your personal finance or not, preparing yourself for the worst possibility is the best choice. Learning How To Prepare For A Recession can minimize the impact on your personal finance. You should focus on making sure your finance could through an economic downturn. Here are steps on How To Prepare for a Recession:
1. Analyze your financial situation
Analyzing your financial situation will help you to know exactly where you stand. So you know what to do next, fix it or improve it. Here are some questions to analyze how your personal finance stack up:
- How much cash do you have?
- How much debt do you have including credit cards and loans
- How much are your monthly expenses (food, shelter, health insurance, transportation, and child care)
- Is there any major event in the future, that will need big costs such as a wedding or a baby
After analyzing those, you will know how much you spending now. So you can anticipate your needs for 3 to 6 months.
2. Review your budget
You should start listing your essential expenses, just in case the future, you or your spouse/partner experience a layoff or job loss. Examples of non-essential spending that you can cut from the budget are entertainment, unnecessary subscriptions, and clothing. You can learn how to make a budget step-by-step.
3. Extra saving
Saving more for an emergency fund is never a bad idea. After cutting unnecessary expenses such as entertainment, and subscription, you can save money for emergencies. According to the 50/30/20 budget rule, saving is 20% of your income, and 30% for “wants”. However, in this situation, you could cut out your extra expenses to increase in savings. You can make an automatic payment to your saving for an emergency fund, so you can regularly save.
4. Get rid of your debt
Another step you should take is preparing money to pay extra on your debt such as rent or mortgage for several months. Anticipating can’t get money to pay regularly every month. You should pay full as soon as possible for any debt on your credit card, to avoid paying interest.
5. Get a hustle job
In this digital era, you can learn new skills or use your skill to get extra income. There are many ways you can choose such as selling online courses, translations, creating e-books, blogs,s or any project related to your skill that you’ve mastered.
By doing an extra job, you’ve just anticipated the worst possibility of job loss. In a recession number unemployment increase impact of a massive layoff. So, you’ll not totally lose your income source if you experience a layoff, but still, have a side job.