A recession can seemingly come out of nowhere, but many times people can tell when one is near. Income is one of the first things affected by an economic downturn. Even when the economy is good, there are important steps that you can take to protect your income before the economy takes a downturn.
It’s common to have multiple concerns during a recession, but people often worry most about the security of their jobs. The global recession of 2008 and 2009 showed an increase in unemployment, and while not everyone was laid off, a recession can cause lingering uncertainty about the future.
Luckily, there are ways to financially prepare for an economic slump. Find out some of the best ways to recession-proof your finances.
What Is an Economic Recession?
Economists formally define a recession as a drop in a country’s gross domestic product (GDP) for two quarters in a row. A reduction in consumer spending may be the cause or the effect of a recession.
Recessions are detrimental to various industries. One way to determine that one is approaching is by observing the activity of both small and large corporations. Knowing how recessions happen and recognizing the signs are two of the best ways to get financially prepared.
Plan Ahead with Emergency Savings
Many people lose their only source of income in times of economic contraction, further worsening the stress of a recession. However, being financially ready before a recession occurs will help you endure a crisis. Having a healthy emergency fund not only gives you a financial cushion to fall back on if you lose your job, it also gets you into the habit of regularly saving money.
The earlier you start your savings, the more prepared you’ll be later on. Accumulating enough savings to get you through tough times can be challenging, especially when it comes to balancing recurring expenses and other financial obligations. You don’t want to neglect your current responsibilities.
However, it’s important to start an emergency fund if you don’t have one, or add to your existing fund if you have one. If saving is a struggle, start by dedicating even a small percentage of your paycheck to an emergency savings or look at ways you can cut expenses in other areas and add the money to your savings account.
Start a Side Hustle or Build Your Skills
Creating another stream of income can change the way you navigate your finances and help protect you during times of financial uncertainty. Depending on one income can be devastating should you be laid off, so it’s important to develop an alternative income source in addition to having an emergency fund.
If you go the entrepreneurial route, selecting a recession-proof field is crucial. A recession-proof business means providing service or product that consumers need regardless of changes in the financial landscape. Multiple fields can be considered recession-proof, which gives aspiring business owners different options based on their interests or skills they already have.
Some examples of recession-proof fields include:
1. Technology and IT Services
Companies will always have a need for skilled IT professionals. Additionally, the growing demand for remote work and support for remote workers has increased dramatically.
2. Accounting Services
Financial service businesses tend to do well during a recession. Businesses and individuals are always looking for ways to make smart money decisions and often seek the help of accountants, bookkeepers, and financial planners.
3. Cleaning and Repair Services
During uncertain financial times, home and vehicle maintenance are still considered necessities. Many cleaning and repair businesses also do not require much in the way of startup capital. This lowers the barrier to entry for businesses like car repair, commercial cleaning, or trash removal.
These are just a few ideas for starting a side business or making a career shift. If you’re considering taking the plunge, think about the skills you already have and how they can be leveraged to start a business that can survive tough financial times. Even if you don’t start a side hustle or switch careers, it is important to network and build your skills regardless of your employment status. Seek new opportunities and spend time honing your skills so you are ready when the economic landscape improves.
Remain Hopeful
A recession can take a toll on your life, causing stress on your finances. Taking steps in advance to stay prepared and make sure you are taken care of during that time can change the whole experience for you. Research ways to improve your spending and saving habits and learn in-demand skills to ensure your security through any downturn.