A dip in GDP for two consecutive quarters constitutes a recession when measured on paper. Due to the fact that the real GDP report trails the end of the quarter by at least one month and is continually amended as fresh data is analysed, it is difficult to determine whether or not a recession will occur before it actually occurs.
However, this does not imply that there aren’t any indicators to look out for. The markets have a tendency to contract during a recession, and the stock market may even enter a bear market at this time (when stock prices fall 20 percent or more from recent highs). In order to stay solvent, businesses can reduce employee hours, let some people go, or put a hold on any new hires. Additionally, when there is a reduction in customer demand, businesses typically have a difficult time selling their existing inventory. Therefore, items that were previously “out of stock” due to high demand may become accessible again.
You can get yourself ready for a recession in one of these five ways:
1. Ensure that your long-term financial strategy is up to current.
You don’t want to be caught off guard if the situation starts to get worse and you haven’t prepared for it in advance because you don’t want to be flustered.
When you are analysing your investments, some questions to ask are as follows:
Why do you want to make this investment? A goal in the near future, such as the down payment on a house, or one in the distant future, such as retirement?
How long do you anticipate keeping this investment? One or two years, or do you have a longer time horizon in mind?
Where do your financial resources lie? Do you have too much of your focus on a few positions, or do you have a diverse portfolio?
What actions will you take in the event that the stock market experiences a 10%, 20%, or 30% drop? Should I buy, sell, or keep it?
Do you anticipate using any of the money that has been invested in the near future? To what extent does your investment need to be protected against the volatility of the market?
2. Go over your financial plan.
Asking yourself, “How much money do I need to make to pay my expenses and cover my basic spending?” is the first step in determining how much money you need to earn. This is the required minimum quantity for your basic income, and you need to make sure that you can maintain production at this level.
If you are married, you should make plans for what would happen to your budget in the event that either of you lost your work. If you see that your finances are getting tight, look for places where you can reduce your spending, bills that you can get rid of, or debts that you can get refinanced.
3. Make sure all of your money is set aside for an emergency.
You should aim to have three months’ worth of bills or $3,000 saved for an emergency, whichever amount is higher. This is a good rule of thumb to follow. When times are tough, it’s a good idea to step up your savings game and put away at least $6,000 or enough money to cover your expenses for the next six months, whichever is higher. Make sure that emergency funds are not invested and are quickly available in order to avoid the possibility of losing money due to the volatility of the market.
4. Pay down debt
Maintain control of your debt by paying off any credit cards and high-interest rate items while you still have a steady stream of income and economic conditions are generally still favourable. This will allow you to stay on top of your financial situation. You should also focus on raising your credit score in case you find yourself in a situation where you urgently require financial assistance.
5. Build your professional connections and make additional income
Increasing your professional network may improve your chances of finding work, which may come in handy in the unlikely event that you are laid off during a recession or if you require additional income. You can also look for part-time work or think about a business you want to start today as a method to earn passive income in the future. Both of these strategies can help you diversify the sources of income you already have.
A recession is a regular economic event, despite the fact that the very idea of one might be terrifying. One that has already taken place in the year 2020, the year 2009, and the year 2001 in only this century. Together, rigorous preparation and practising your ability to recognise telltale indications are the most effective ways to shield yourself against harm and keep one step ahead of the game.
