Worried about Recession? Donet Panic, Be Prepared
If you have been following financial news, it might look the world is on the brink of another global financial crunch due to COVID-19 and industries being either slowed or shut down across the world. Stock prices are falling and markets are in turmoil, the officials are running to contain the spread of a deadly coronavirus. The following post is definitely not to make you more panic but to help you be prepared, when recession will hit the market.
Now is the right time for investors to not just look at the “to-do” list but also prepare a “to-don’t” list too. To-don’t list must contain things like don’t panic, don’t make hasty financial decisions and don’t make any new investment. What you should do is make sure that you have risk tolerance and time to toughen up the volatility.
Top up Your Emergency Fund Account
Economic situation is volatile and job loss can make it difficult to pay your day to day expenses. The foremost important thing is to beef up your emergency fund i.e. the pool of cash that you reserve for events like job loss and financial crunch to still afford your necessities. You must focus on loading up your emergency fund with three to six months’ worth of living expense and funds.
Identify Ways to Cut Back
Before the downturn actually begins, isn’t it a good idea to go through your monthly expenses and identify between needs, wants and luxury items? Identify which items are discretionary, which items you don’t need and which items come under necessity. The discretionary items are the ones that you can eliminate for now such as going out for dinners or investing money on seasonal clothes.
Make a Plan
This is the high time to put a financial plan together, so that you will not have to suffer in the difficult time. Look at your entire financial situation, analyse how you can achieve your financial goals and learn what it takes to get there. However, try not to worry so much – especially, if you not near retirement age. Younger investors have a long time so keep in mind that you have a long-term investment horizon, which means recessions and corrections should be factored into your investment strategy.
Supplement Your Income
If you are worried about tough economic situation ahead, then you need to do everything you can to insulate yourself. One of the best ways you can do that is by increasing your earnings in anticipation. For instance, instead of investing your hard-earned money in any new business, put a little overtime in your current job or take up an assignment that matches your skills to increase your income.
It’s Not the End of the World
A recession does not mean that the entire world is falling apart. It is typically just slowed down economy, which may last for three or six months or some extended period of time. However, like I previously said, it is not end of the world. Banking system and financial institutions are strong and still making money.
You do not need to live a monk’s life during the recession but you should pay extra attention to spending and budgeting.