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The worst-case scenario for anyone during a recession is the recession layoff, which is painful for everyone involved. And no university degree or industry qualification will protect you when a company must reduce its workforce.
You can prepare yourself for the next recession even though it's still just a threat. With foresight, clear thinking, and a creative mind, anyone can become recession-proof.
Cut Back On Spending
First, identify and then modify your spending habits. Nobody can spend less when they're committed to pursuing luxuries.
During a recession, you must use every dollar wisely. Watchful spending means recognizing your 'invisible' spending, like unused services, and watching out for consistent treats: those three lattes a day represent a big spend by the end of the month.
If you no longer watch a cable channel, cancel it. Buying second-hand products and repairing broken ones. Reselling unwanted items and swap one thing for another to get what you need.
You can sell practically anything online or at yard sales. Suppose you are ready to put in the necessary effort. In that case, it is possible to increase your income without adding to your expenses.
Build Up Emergency Funds
It would help if you had emergency savings for when you get laid off. Many people disregard emergency funds until it's already too late. Plan for the inevitable and stay ahead. Examine the living expenses from a few recent months. Then work out how to put aside a portion of income for future use. The idea is to keep aside enough to cover the term of a layoff.
Locate and cut your highest costs, even if you are working. Find a part-time job or an enjoyable side hustle to make a small income committed solely to savings.
Create A Budget
A budget is a valuable tool. It will help you visualize your income and savings and monitor your spending. Budgeting has become easier and more visual thanks to recent mobile budgeting apps. On any smart device, you will find a free budgeting app. However, a pen and paper budget is just as effective. The real secret is to stick to it once you've created it.
No matter which method you choose, make sure your budget includes a separate savings account for your emergency fund. Once you have a budget, you can track your progress and watch your savings accumulate.
Diversify Your Investment
The best way to survive a recession is to ensure your money is safe. The easiest way to do that is to diversify how you are saving and storing money. By diversifying, you reduce the risk of loosing all the money in a partial asset.
Your 'risk tolerance' and financial goals will determine your optimal strategy to diversify. There are many investment methods available with different risk associated with them. One of the most popular investment methods, to make sure that you are on the safe side, is called the 80/20 rule. This rule means you should invest 80% of your money in safe, long-term investments, like savings accounts or CD (Certificate of Deposit) accounts.
The remaining 20% can then be used to purchase high-risk stocks, cryptocurrency, or other short-term investments. This way, you can increase your income while maintaining a high level of safety.
Have Extra Income
The greatest approach to protect your finances against a recession is to have several sources of income. You can start a side hustle or partner with others to form a joint venture. If you want to start a business, now is the best time to do it.
If you need to make money quickly, you can also look into picking up freelance work. There are many online side jobs through apps such as Uber or TaskRabbit, and you can donate your blood plasma in exchange for immediate payment.
You can find few examples on how to make money using app in our Best Money Making Apps article.
Long-Term Investment
Putting money into long-term investments can be a terrific strategy to make money. The most common long-term investment strategy is known as "buy and hold". This means you purchase a share of a company and hold on to it as long as possible.
The longer you hold on to it, the more money you can make. In addition, you can diversify your long-term investment portfolio by purchasing shares in various companies. This investment will protect you if one company goes out of business and ensure you make money in good economic times.
Finally, if you have an extra $1,000 or so to invest, you can purchase exchange-traded funds (ETFs). ETFs are low-risk investments that track the performance of a certain market index. They're a great way to diversify your long-term investment portfolio and profit from a growing economy.
Conclusion
Most people fear a recession because of the possibility of being laid off and the fear of not surviving financially when this happens. And it's true that many individuals lose their employment during a recession and face a period without income. However, you prepare for downturn catastrophes by recession-proofing yourself as best you can.
Recession-proofing means lowering spending, saving an emergency fund, creating a budget, diversifying your portfolio, and finding supplemental income. Regardless of the economy, these habits can safeguard you through difficult times.