Introduction
“The fear of losing your job and wealth is terrifying, testing your mental strength and how you handle the situation.”
It’s hard to predict when a recession will hit or how deeply it will affect you. Recent recessions like the 2008 housing bubble and the dotcom bubble have been devastating, eroding wealth and bringing many individuals to their knees.
Tough times never last long, but they can be a horrible and frustrating experience. The good news is you can always be prepared to face these challenges and come out with minimal harm. In this blog, I’ll share the financial preparations you should always be ready with to help you navigate economic downturns.
Without wasting any time, let’s get started!
Impacts of Recession
A recession can impact you in many ways. Let me list the most important ones and outline a plan to help you be prepared. I’m not here to scare you, but to help you prepare for the worst situations so you can navigate through the toughest storms smoothly.
Job Security –
Whenever there is an economic downturn, the first thing we notice is mass layoffs. Many companies try to save money by cutting costs, and the easiest way to do this is by downsizing. They reduce their workforce drastically, leaving affected people with no regular income. Finding a job during a recession is also challenging, making the situation even worse.
Imagine yourself in this situation with no salary, a huge list of bills to pay—it would be a nightmare, and you might feel like you’re falling into a bottomless well. This can significantly deteriorate your financial situation, setting you back by years. If things go south, you might even lose some of the good things you’ve built over the years. But you can prepare for this situation, and I’ll explain how in just a few minutes.
Losing Wealth
Another major impact of a recession is the risk of losing your years of savings. Yes, that’s right. During a recession, many banks and companies go bust, and if you have money invested with them, you could lose it entirely. Additionally, if you’re invested in the stock market, it tends to lose heavily during economic downturns, significantly eroding your wealth.
History has taught us that nothing is permanent, but experiencing such a situation can leave a scar on your life and impact your future decision-making ability. You may be haunted for life if you fall victim to this situation. But don’t worry! The good news is, if you plan well, you can use this as a once-in-a-lifetime opportunity to create wealth and become rich. I’ll explain how we can turn this challenge into an opportunity to build wealth.
Impact on Health and Family
Losing your job or income cutoff will increase stress and impact both your mental and physical health. You and your family will be forced to sacrifice many things you’ve dreamed of for so long. This can affect how you take care of your family in the future and have an impact on your children’s upbringing. If not planned well, this impact may extend to the next generation, where your children become more conservative with money.
Enough of all the scary thoughts. Let’s focus on how we can be prepared for tough times.
Prepare yourself for Recessions
With simple financial decisions and discipline, one can manage to overcome the consequences of a recession. And if you have good financial knowledge, you can even make once-in-a-lifetime returns. Yes, having good financial knowledge is the key.
What puts you under pressure when you lose your job? The simple answer is bills. Your mortgage, car loan, your child’s education bills, credit card bills, and the list goes on. The first thing you should understand is that you should only commit to what you can afford. If you make commitments that exceed your income, you will always be under financial stress.
Financial Discipline
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- Understand your lifestyle. You should never compromise your lifestyle, but it should always align with your earnings. You can’t buy a Benz car when you are earning 1 Lakh per month—your purchasing decisions should be in line with your income.
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- I want you to organize your spending patterns. There should be no unaccounted money spillover, such as unwanted subscriptions that you rarely use or bills that you don’t pay on time, leading to undue fines.
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- Your combined loan EMIs should never exceed 50% of your income. Clear off your high-interest loans as soon as possible. These are wealth destroyers, and I’ll be writing a dedicated blog on how high-interest rate loans can erode your wealth.
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- Keep at least 6 – 12 months’ worth of salary for financial emergencies. Have 3 months’ worth of cash in your bank balance and 9 months’ worth in gold. This will help you in bail out situations and emergencies, as gold beats inflation. Gold prices tend to rise during uncertain times, making it more valuable during a recession.
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- Always have health insurance and term insurance to secure your family in case of disasters.
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- Ensure you’re focused on learning new technologies and staying up to date with market requirements. Set a goal each year to learn a new technology and try to find opportunities to work with it.
What to do in Recession?
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- Do not panic! I know it will be hard to contain your emotions, but you must. Otherwise, your family will also start panicking.
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- Access your situation.
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- Your job – If you have invested in learning over the years, you will always be ready for a new job, or there’s a good chance that your company may retain you due to your skillset.
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- Financial – If the worst thing happens, like losing your job, again don’t panic. Assess your financial situation and temporarily cut down your non-priority expenses. Downgrade yourself to a basic lifestyle until you find a new job.
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- Job hunt – Take a break for a week or two and strategize your job hunt process. I know it will be hard to find a job, especially with more experience, but you must be persistent and keep trying without becoming frustrated.
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- Assets – Don’t liquidate any assets you have. Try to manage all your expenses with the emergency money you saved for this situation. This will not hurt your financial situation and also give you some confidence until you find a new job.
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- Access your situation.
How to make best out of Recession?
During a recession, you’ll find that most asset values significantly decrease. This presents a once-in-a-lifetime opportunity. I would suggest considering distressed asset shopping. The reason for this is that while the entire world is in panic, you should become greedy.
You should do this if you are financially knowledgeable and willing to take calculated risks, which may or may not work out.
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- Find distressed assets such as homes available for foreclosure. Try to negotiate the best deal with significant discounts and approach a bank for a loan to invest in it. This strategy can yield returns of 30-40% as soon as the market recovers.
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- Identify some good stocks that have significantly devalued. Consider liquidating some portion of gold or other cash components and invest in these stocks. If your stock picks are right, these stocks can become multi-baggers in a few years, setting you up for retirement.
Conclusion:
I know a recession is not a situation anyone wants to be in. But sometimes, it’s unavoidable, so you should always be prepared for it. Knowledge is key to surviving these storms, and I encourage you to invest some of your time in learning. You can do that by following blogs and YouTube channels. Please click the links below to find more details.
For more personal financial topics – https://path2financialfreedom.com/