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How To Prepare Your Finances For A Recession

Posted by : Premraj | Posted on : Tuesday, May 12, 2020

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A recession is bad for lots of people and can be a challenge to survive financially. Even the best made plans can be ruined because of a recession. That’s why it makes sense to prepare for a recession even when there isn’t one on the horizon.

Unfortunately, there is quite a big one on our doorstep so if you are not yet prepared, then this is a good time to make yourself recession proof. As much as possible, anyway.

This doesn’t mean that you need to become a doomsday prepper and stock up for an apocalypse, but there are things you can do to ride out the downturn much more smoothly and be positioned better when it is over.

In this article, I will go over several things you can be doing to ride out the next recession with as little pain as possible.

Save money and live frugally

Frugal living sounds painful and like something your grandparents had to do to survive. These days, it just means living a little more intentionally and being careful with your money.

For example, you can use a shopping app that gives you cash back for things that you need to buy anyway. This can put more of your money back into your pocket. That’s not much of a sacrifice.

And instead of mindlessly walking around a mall looking for ways to spend your money, be smarter about your purchases. Sleep on any purchase before you make it so you are less likely to make an emotional purchase.

Also, look for opportunities to buy used goods. Everything from kids’ clothes to appliances can be had at a bargain and only lightly used instead of buying new.

Pay debt or save?

Staying out of debt is the way to go, but if you already have debt then you are in a quandary. Should you pay down your debt or save your money when there is a recession?

If you have to choose one or the other, it is usually better to not pay down your debt and try to save some cash. You could find yourself unemployed and will need that cash to pay your mortgage or rent and other living expenses that can’t be paid with a credit card.

The best case scenario is to stop using your credit card and any money saved by spending less can be used to pay a little more on your payments than normal. It isn’t a good idea to use your savings to knock down your debt and lower your payments.

Should you invest?

Buy low, sell high, right? In a recession, stocks can be much lower and could look attractive to buy. Likewise with real estate.

If you do have some reserves you can part with, then buying stocks during a recession could position you nicely for when the economy comes back. But, don’t use your savings to do this. Dividends are not being paid on many stocks when there is a deep recession so it can take a while to see any money coming back.

 

 

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