Preparing for a recession may seem unnecessary when the economy is stable but taking cautionary steps can prevent significant financial loss should a recession occur.
If the economy crashes, you are going to need a substantial savings account to rely on until the market begins to stabilize. The more you have saved, the less you need to worry about when it comes to affording your bills, rent and food during the recession.
Taking steps to lower your dependency rate is equally important if you are prone to spending most of your paycheck every week. The higher your dependency rate, the more difficult it becomes to adjust your spending habits during a period of economic instability. By preparing in advance, you are ensuring that you are ready to handle financial hardship over an extended period until the economy begins to stabilize once more. Follow this guide for helpful tips you can implement now to protect yourself in the event of a recession.
One of the best things to do to prepare for a recession is to maximize your savings as much as possible. Having a substantial amount of money saved helps to alleviate pressure if your paychecks take a hit or if you lose your job because of the economic downturn. When determining how much you need to save, ask yourself if you could realistically live off your savings for at least six months or more. Recessions are unpredictable and the conditions may improve quickly, or they may stretch out over the course of several months. Either way, having a proportionate amount of money deposited in your savings account allows you more breathability when it comes to managing your finances until the conditions stabilize.
Take time to determine how much your monthly expenses equate to and how much money you are going to needed to unexpected expenses as well. Once you have calculated this total, adjust the amount you are adding to your savings account each week to ensure you have enough put away if a recession were to occur unexpectedly. If you typically add $10 to your savings account each week, opt for adding $15 to $20 per week instead as this slight increase leads to higher savings over time.
Your dependency rate is the amount of income you regularly spend. For example, if you spend approximately 90 percent of your income every month, your dependency rate is at 90 percent. Lowering your dependency rate is essential if you want to stay afloat during a period of economic difficulty. Look at where your money is going each month and determine where you can cut expenses to lower your dependency rate. Certain items, such as your rent and monthly bills, are more difficult to adjust unless you try to reduce the amount of energy you use within your home to lower your electricity bill.
Typically, added expenses such as take out and coffee are the driving force behind a high dependency rate and adjusting these areas is essential if you want to decrease your spending. Instead of buying coffee every morning or ordering takeout every day for lunch, start preparing these items at home to save money. If you still want to enjoy these items, choose one day per week where you treat yourself to coffee and lunch. This allows you to live the type of life you prefer without denting your wallet in the process.
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However, lowering your dependency overnight is unrealistic and you should aim for small, incremental goals at first. If your current dependency rate hovers around 90 to 95 percent, aim for lowering it to at least 85 or 80 percent over the next few weeks. This goal varies as different people need to eliminate different expenses, but eliminating unnecessary purchases is the best place to start when you want to lower your dependency rate.
During a recession, many people face the prospect of losing their jobs. Being prepared for this possibility allows you to rebound quicker and makes it easier to apply for jobs outside of your designated field. It is important to update your resume on a consistent basis to ensure this document reflects your current work experience and all work-related skills you have recently acquired. When you update your resume periodically, you are prepared to immediately send it out to prospective employers if you discover you are being laid off from your existing job.
The longer it takes for you to update your resume and respond to job listings, the less likely it becomes that you are going to receive gainful employment in a timely fashion. When you lose your job during a recession, it is essential to find another source of income as quickly as possible to ensure you are not struggling to make ends meet indefinitely. Another way of improving your odds of finding a new job when needed is to improve your networking approach.
If you network with people in your desired field now, you are more likely to hear about job openings in the future if you need to seek a new employment opportunity. Start to build relationships with your coworkers and other individuals experienced in your field to ensure you have a lifeline established if you lose your job suddenly.
Look for group events such as social mixers and plan to attend these events to expand your networking outreach. These events are designed to allow people with common goals and interests to meet one another and establish working relationships, so this is a good starting point if you are not comfortable with networking.
When you are at a networking event, prepare a small pitch in advance to ensure you are telling people about your most important characteristics once you meet them. These pitches are typically around 15 to 30 seconds long and include information such as your name, your experience in your field, your current employer and what you are looking for in future employment opportunities.
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