4 Things Everyone Should Do to Prepare for an Economic Recession
by Emergency Essentials.
Some economists are suggesting an economic slowdown is imminent. Others say the next one is probably a while away. Either way, it’s wise to prepare financially now for what’s to come.
“The key to keep in mind is that anything can happen. Therefore, always prepare for any possible emergency,” said Kaylee Chen, a peer mentor at the University of Utah Personal Money Management Center, in an e-mail.
Chen recommended four steps to prepare for an economic downturn: Have a savings, have necessities like food storage, learn a new skill and mentally prepare.
Start saving now for the next recession.
First, have or start a savings.
Peter Dunn, a financial columnist for USA Today, suggested that more people have been saving since the 2008-2009 recession because they’re thinking about it. Chen said she hadn’t necessarily been seeing that.
“People are definitely more aware of the idea of saving. However, following through and acting on it is a different situation,” she said. “I find a lot of people are still spending.”
She suggested budgeting based on the 50/30/20 rule. Fifty percent of income should go to fixed expenses. These are expenses like a house payment and utility bills that must be paid.
Thirty percent of income should go to discretionary expenses. These are more flexible expenses like groceries, gas, and entertainment that can be adjusted.Twenty percent of income should go toward investing or financial goals and saving for emergencies. Chen recommended women put 12 percent of their salary in long-term investments and men 10 percent.
“The reality is that women live longer and make less income than men,” she said.
She recommended people talk with a financial planner yearly.
“They will work with you to plan for children’s college, travel, or retirement,” she said.
The important thing is to start saving. “Even as small as setting five dollars aside, it’s still a start,” she said.
Secondly, food might be hard to come by during a recession. Prepare while you can by obtaining an emergency food supply. Second, keep some necessities like food storage.
In any emergency, whether it be short-term or long-term, it’s important to recognize nobody can do everything by themselves. Therefore, one of the necessities to build is a list of resources. These can include a church or non-profit organization. It’s also useful to network to develop a list of where to go for extra help in case of job loss or other emergency.
A column making the rounds online that was said to have been written by a man who survived Hurricane Sandy pointed out that networking is useful for many aspects of emergency preparation.
“Quote, ‘A man with a chainsaw and knows how to use it is a thing of beauty.’”
Third, Learn new skills. Like chainsaw wielding.
These can translate into side jobs for additional income. Chen used the example of a piano teacher. Secondary skills can be useful when a person is younger because it helps them faster achieve their financial goals. When a person is older and around retirement, a side job can help them with retirement savings.
Finally, mentally prepare for bad things to happen.
One key to mental preparedness is to get out of debt. Chen encouraged a budget or lifestyle change. Dunn suggested decreasing spending by 10 to 15 percent over time. “You’ll tighten the budget before you are forced to tighten the budget,” he said.Another is to practice caution in an investment portfolio. “When the market goes down, many people get scared of the market and take out their money. You do not want to buy high and sell low,” Chen said.
Kiplinger, a finance education web site, pointed out that markets quickly recover. Since 1945, the site said, markets that have lost 10 to 20 percent have rebounded in just four months on average. Bear markets, with losses of 20 percent or more, have had an average recovery time of just 25 months. “If you’re in middle age, consider making a portfolio less aggressive,” a Kiplinger column said. “No single sector should claim more than 5% to 10% of your holdings.”
Very few people can affect global markets. But they can take care of themselves and their families. “Understand that you have no control over the economic downturn,” Chen said. “Honestly, all one can do is to wait.” And, she added, a person can start taking these steps even during an economic downturn.
“It’s never too late,” she said.