The world's economy has always been a little rocky. It's completely normal for countries, companies and individuals to all have their ups and downs month after month. That's no cause for concern. However, when just about everyone's finances are predicted to plummet all at once, it's time to prepare.
Over the past few years, the world's economy has seen exponential growth. We saw the world's first trillion dollar company and witnessed corporate debt reach a staggering $247 trillion. These two factors in mind don't say a whole lot, but when you factor in Australia's multi-billion dollar housing slump, a collapse in the FAANG stocks and the end of the mining boom, things start to look bleak.
All of that said, analysts are expecting a global recession to start rearing its head sometime between 2019 and 2020. In this article, we'll take a look over a few ways you can prepare for a recession as a business or as a family.
Fast Track Your Emergency Fund Account
First up is growing your emergency fund - or starting an entirely new one. If you don't have enough cash (not assets, stocks or other investments) set aside for you to live six months without a job, you really need to get going!
It's time to cut back on all non-essential spending and redirect as much income as you can directly into a high-interest savings account. If you're a two-income family with both earners in a recession-sensitive industry, it's best to halt just about every expense other than your bills. This is because you'll likely see both incomes dry up during a recession and you'll need some cash set aside for mortgage payments, utility bills and more.
Don’t Lose Track of Finances
In a recession, the last thing your family and your business wants to do, is lose track of finances or ignore a financial leak. Any financial losses will be greatly exacerbated during a recession and might even result in you losing an asset or falling deep into debt.
The best way to deal with this and prevent any of these issues spiralling out of control, is to have accountants or financial advisors look over your current financials. They’ll be able to advise on measures to counteract losses and keep your business growing in a recession or stop your family from falling further into debt.
Pay Off All Debt
As you likely already know, your debt should be paid off first before anything else. That means skip that night out, trip to the cinema or that new iPhone and redirect what you would've spent on these things into paying off your debt. During a recession, we'll all be under a tonne of financial stress and the existence of credit card debts could push you to a breaking point.
The main reason you'll want to pay off debt is that it will reduce your monthly expenses and therefore make your emergency funding last longer. This will mean that if you do lose your job, you'll be able to power through for longer and not have to rely on family loans or even sell your home or business’s assets.
Work on Your Skills and Resume
There’s no guarantee that you’ll keep your job during a recession and that will mean that your primary income could evaporate. Work to fight against this by building your skills and your resume in the event you need to get back into the job market - or create a new income stream.
If worse comes to worst, you might need to give up your free time after work to start a new business or work as a freelancer to get some extra income.