This is a bit of a depressing topic, isn’t it? After all, we’re in the middle of summer and it’s just about the peak of the high vacation season, right? Why try to throw cold water on everyone’s good times?
- The economy is already showing signs of slowing,
- The presidential election will be over in three short months, and no matter who wins it’s anyone’s guess what will happen after that, or even
- I’m a mean person who’s trying to rain on everyone else’s summer fun.
I’m not sure that we ever really got out of the last recession, or if the last one wasn’t just an uglier continuation of the one before that, but the reality is that we have a downturn every few years. Since the last one officially ended sometime during 2009, 2013 seems like a good guess on the arrival of the next one. That gives us about a year to prepare, and that’s Reason #4 why I’m writing about this topic.
In the strange way that life works when we’re prepared for trouble, it never seems to happen! So how do we prepare for the next recession?
Avoid (or Tone Down) Major Purchases
Major purchases do two things that hurt us when the economy turns bad: 1) they drain savings, and/or 2) they put us in debt. I’m talking about cars, houses, furniture, boats—anything that has the potential to cost a couple thousand dollars or more.
Before making any major purchases, ask yourself the following questions:
- Do I actually need this item, or do I mostly just want it?
- Will this item put money in my pocket? (for example, a car for work, or a computer for business)
- Were I to lose my job six months from now, will I regret having made this purchase?
- Even if it’s something we truly need, do we have the ability to buy it without draining our savings or adding more debt?
- Would a decent second-hand model get the job done?
Major purchases can’t be easily undone—especially in recessions.
Find Income Sources Outside Your Job
For most of us, the biggest threat from recessions is the loss of a job. One of the best ways to deal with this (in advance) is by creating income sources outside your job. It’s not just a matter of adding more income, but also of exploring and developing other career directions. This is especially important if the business or industry you’re in is already wobbling.
Working outside your job will give you the experience and business contacts and references that might enable you to transform a side job to your next full time position. Get your foot in the door before the economy takes another slide.
Another option is to start a side business. You can start it and grow it while you’re still on your employer’s payroll, but if you lose your job you can ratchet the business up to full time.
Say NO to New Debt
The last thing you ever want to do is to create financial obligations during good times that you’ll have to pay for during not-to-good times. This is what drives foreclosures and car repossessions. If you want to avoid that fate, don’t add any new debt.
And while you’re at it, start working on paying off old debt. Debt is a big enough pain during good times, but its pure excess baggage you don’t need to be lugging around during the bad ones. If you lose your job, you can always cut expenses quickly, but debt takes time. You have that time right now.
Build Up Those Savings
At a minimum, a fattened bank account can give you breathing room to deal with a sudden job loss or other financial calamity. It enables you to face problems without having to borrow from banks, or beg from family. Start working on increasing your savings now.
Remember those major purchases I recommended that you not make? You can add to your bank balance with the money that you didn’t spend on them. And the extra income from your side job or side business can go right in the bank too. A year from now you could have a few months living expenses sitting in the bank, and that’ll feel good.
Get In Shape
This reads like my most ridiculous preparation, but actually it isn’t. In fact, it’s far from it. Exercising, dieting and improving your overall physical condition are always important, but never more than when hard times hit.
- If you’ll be in the job hunt sometime next year, you’ll be glad lost a few pounds and toned up a bit. When jobs are hard to get, they often go to those who look the most capable of doing them.
- In the event you have to juggle two or three income sources, you’ll need the increased stamina getting in shape can bring.
- The healthier you are, the less you’ll need to spend on healthcare, and the less time you’ll lose from work.
- Concentrating on your health could be the significant distraction you need that will boost your mental and emotional state at a time when finances are getting difficult.
A recession will come whether or not you’re prepared. But if you are prepared, there’s a good chance it won’t be your recession! And if it doesn’t come, you’ll be better prepared for what ever else you want to do in your life. Like that run for financial independence you may have been putting off for a few years.
photo credit: Freedigitalphotos.net