How to prepare your money for the coming economic downturn


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Anticipating an economic slowdown may seem as mystical and complicated as reading tea leaves. However, economic readers of tea leaves – financial experts – warn that the economic winds are changing.

Although the unemployment rate remains low, there are other economic indicators that cause financial analysts to predict difficult financial seasons. First, economic growth is almost at a standstill. The rate of wage increase has stagnated. The constant-maturity Treasury (CMT) rates, which are used to measure and predict future interest rates, economic growth and output, are almost flat – and may be reversed. This means that while the economy continues to slow down, consumer interest rates will rise and investment income will lose momentum or even money.

Preparing for a recession is like preparing for a tropical storm – there is no way to predict how bad things are going to get, but you horrible idea. Here are some steps you can take to protect your finances from the coming downturn.

Strengthen your emergency fund

The first thing you should do when preparing to deal with a storm is to prepare your house for attack. Coastal dwellers climb windows and surround their homes with sandbags. An emergency fund does the same thing financially. This is the extra installation and protection that can help you when the economy plunges. It can not stop the wind or prevent rain, and it may not protect against all the damage, but it provides an extra layer of protection. And it gives you a chance to preserve what you have worked so hard to build.

The traditional emergency fund covers three to six months of daily living expenses – and is even more important for people with high expenses, high wages or hard work to replace. In times of economic crisis, you want to save more than the standard amount recommended.

Under normal circumstances, the average duration of unemployment lasts about three to six months. However, experts believe that this number is growing slowly and could double in a stagnant economy. It has been suggested that you plan to be unemployed for at least one month for every $ 10,000. So if you make $ 70,000 a year, you should expect unemployment that will last at least seven months. This formula is an excellent indicator to help you determine the amount you need in your emergency fund. (See also: 7 simple ways to build an emergency fund from $ 0)

Adjust your budget and reduce your debts

Another thing people do in an impending natural disaster is to buy non-perishable food and supplies. This ensures that they will have something to eat during a major power outage and a food shortage. Adjusting your budget by reducing expenses in anticipation of a financial disaster follows the same principle. Even if during a disaster you can not eat steak and lobster, you still eat it. The same is true when the money is tight.

Your vacation and renovation projects may have to wait. You may have to give up costly advanced education programs and even take your kids out of private school. The essential thing is to prioritize your expenses, to see what extras you can cut and to be ready to lower the price when the time comes. It is also imperative that you stop living overtime, bonuses and extra money. You should transfer this money to your emergency fund or other liquid savings. (See also: 5 budget review tips for recent unemployed)

You should also focus on the aggressive repayment of debt. If you can quickly get rid of some of your small debts, do it. The fewer people you need, the better. And the repayment of the debt is also a type of de facto savings account. Of course, the money is not in an account and you can access it – but if you eliminate the debt, you need less and have more money. You will also save on the amount of interest you will pay over time. Debt repayment is always a fantastic idea. However, this can be your salvation during a recession. (See also: Five-Day Debt Reduction Plan: Pay for it.)

Strengthen professional skills

A non-financial thing you want to do when you feel that the economic wind of change is blowing is to evaluate your set of professional skills. You have a main job that you do. But you also have a lot of little auxiliary functions that you perform. These things translate into employment opportunities or, at the very least, points on your resume.

Take time now, when you are calm and things are going well, to refresh your resume and refine or supplement your skills (just make sure you do it without adding any debt). Most companies offer some form of training, and many will also pay for some or all of the training you receive elsewhere. Some companies even have assistance programs for tuition or reimbursement. Now take advantage of these opportunities, but be sure to read the fine print and understand the guidelines before signing on the dotted line. (See also: these 17 companies will help you repay your student loan)

Reassess your investment portfolio

The stock market in general, or at least, becomes extremely volatile during a downturn. Financial experts always advise you not to withdraw your money from an investment in a moment of panic. Fear should never drive your decisions.

Go ahead, review your investment portfolio now and see if you want to make any changes. Risky funds will likely lose money during a downturn, but they will also rebound quickly as the economy recovers. And the safer investments may not lose much, but you will not do much either. They cancel each other.

One system or investment style is not preferable to another. They all have advantages and disadvantages and react differently to ups and downs. The key is to evaluate yourself. Will a heavy loss give you a heart attack? If that's the case, go for something less risky. But if you're sure you can ride the wave and endure the turbulence of a risky investment, stay put. Be sure to consult a financial trustee and obtain solid financial advice before you decide. Instinctive reactions are the fastest way to lose big when it comes to investing. (See also: 8 ways to prepare for a stock market plunge)

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How to prepare your money for the coming economic downturn