On September 29th, 2008, the stock market crashed. The S&P 500 fell more than 12% in a single day, the most in history to that point. The immediate aftermath was terrifying: homes lost value, banks cut off lines of credit, and people struggled to find jobs. As the recession wound down five years later, a common question people had was, “how do I prepare for the next one?”
In the wake of a global pandemic, many of us have now faced “the next one.”
The long-term economic impact of the covid-19 pandemic is still unknown. Some are undoubtedly concerned that the worst has yet to come as far as the economy is concerned.
Whether that will prove to be true or not, we can’t say. However, we can provide actionable suggestions of how to prepare for an economic downturn.
What’s even better?
These suggestions will prepare you for a slump of the broad economy as well as personal setbacks like a reduction in income too.
Here are seven things you can do now to prepare for the next economic downturn.
Create a budget that you can live with.
Creating a budget is the first step toward having complete control of your finances.
The first thing to do is track all your expenses. If you’re still using a pen and paper, consider turning to technology! Send an email to National Legal Center for a free copy of our Budget Maker.
Once you have the data, categorize your expenses. Some common categories include grocery, utilities, rent or mortgage, entertainment, and transportation.
Creating a budget that you can’t possibly stick to will only create more stress for you.
Next, calculate your income. Base your budget on your net income, which is what you bring home after taxes and deductions. If you’re not working a traditional job, calculate your average income over the past six months to get a realistic number to use for your budget.
A budget provides a degree of control and understanding over what comes in and what goes out. This insight will help you manage your money and be more confident amidst economic uncertainty.
Have an emergency fund.
An emergency fund is your first line of defense against an economic downturn. This is cash on hand, generally kept in a savings account.
Most financial experts suggest 3-6 months of living expenses but keep in mind that your personal living costs will likely be different. It may not be as hard as you’d expect to get to 6 months of expenses, as chances are good you have some costs that you can cut if needed.
Keep your debt in check.
Of all the expenses in your life, high-interest debt is the most damaging during an economic downturn. Even during a recession, prioritize paying off credit cards and loans, as unsecured debt eats away at your ability to save more money.
First, make a list of all your debts. Then, establish a plan to pay off your debt.
If your debt is unmanageable, it may be time to call a debt settlement attorney. The legal professionals at National Legal Center can help! Complete the form on this page to #StandUpToDebt today.
Keep your housing expenses low.
In a tough economy, most people are looking to cut costs, and housing is often one of the first places they look. Moving from renting an apartment to owning a home has long been considered part of the American Dream. But if you live somewhere with high housing expenses like New York or San Francisco, buying a house may not make sense for your bottom line.
In a world where remote work is more common than ever before, people are relocating in droves to locations that better suit their personal and financial needs.
Some cities are even willing to pay you to move to them!
If your situation allows it, consider relocating to a lower cost of living area to keep your housing expenses down.
Develop multiple income streams.
Having multiple sources of income creates a buffer of protection against a downturn in your primary source of income. A second job, selling things on Craigslist or eBay, providing tutoring services to students are some examples.
Online platforms such as Fiverr and Upwork have made finding flexible, remote work easier than ever before. The pandemic has spurred massive adoption of freelance work.
The gig-economy is booming, and there’s no sign of it slowing down.
Stay aware of what is happening in the world.
Though it’s nearly impossible to predict an economic downturn, planning ahead and staying informed about the economy is a must-do.
The news is full of stories that predict a coming downturn, so don’t go into a panic every time you see a doom-and-gloom headline. Instead, read these stories, talk with friends and family about them, and evaluate the information with a critical eye.
Keep your ear to the ground, but remember that this is just a signal. Don’t let the noise consume you. Create your financial plan, and stick to it.
Diversify your investments.
It’s hard to think about investing in stocks or real estate when struggling with credit card debt. However, if you’re at a point financially where you are investing money, consider diversifying your investments.
Don’t keep all your eggs in one basket by putting all of your money in one place.
A diverse portfolio will consist of stocks across several industries and countries, bonds, real estate (or pieces of real estate through Real Estate Investment Trusts), and more.
So, there you have it- seven actionable ways to prepare for an economic downturn. Review this list and take any action you can. Then, over time, keep working toward the others. Taking steps to become prepared will leave you feeling more confident and secure in your financial future.
If debt has you down, we’re here to help you up. Complete the form below and #standuptodebt with National Legal Center!