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Are You Preparing for the Next Recession?

By //  by Kevin M

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?

Three reasons:

  1. The economy is already showing signs of slowing,
  2. 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
  3. 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?

Coming Economic 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:

  1. Do I actually need this item, or do I mostly just want it?
  2. Will this item put money in my pocket? (for example, a car for work, or a computer for business)
  3. Were I to lose my job six months from now, will I regret having made this purchase?
  4. Even if it’s something we truly need, do we have the ability to buy it without draining our savings or adding more debt?
  5. 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.

{Learn how to honor God in the workplace}

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.

Consider:

  • 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

Filed Under: Economics Tagged With: Career, Debt Management, debt repayment, diet, Economics, economy of the united states, Emergency Fund, exercise, extra income, recession, Saving Money, Savings, side job

Build Up Your Financial Security In Uncertain Times

By //  by guest

[This post is written by Derek from Creating A Passive Income. His goal is to explore every single passive income source there is and evaluate their effectiveness and revenue. If you’re interested in extra income, be sure to check out his site.]

There is a common piece of advice going around between parents and students. “Go to school, find a safe, secure job with good benefits, and you’ll retire well.” Let me be the first to tell you, this advice is terrible.

In our world today, there are fewer jobs than there are people, and employee turnover is higher than ever before. If you make a mistake or if your salary exceeds what is typical for your position, you might very well be on the chopping block. You might have your college degree, but guess what, so does everyone else.

The Typical Response for Financial Security

Occasionally, things just don’t work out with employment. It might not even have been your fault. The decline of the economy, the struggling sales of your company, or a transfer of ownership could be the cause of your job displacement. Whatever the case may be, you should have a financial plan in place so that you’re protected against total bankruptcy.

Once again, there’s some common advice out there – “To protect yourself from financial devastation after a job loss, you must have an emergency fund with funds equivalent to 6 months worth of expenses.” While I do condone an emergency fund, this alone will not protect you against complete financial failure.

After all, what if you just can’t find a job until month number 8? What happens then? You load up the credit cards? I hope not. The problem with setting aside a static stash of cash is that it is not regenerative. If you keep pulling money out and no more money gets put in, it WILL run out!

Financial Security 2

photo credit: Stuart Miles

The Best From of Financial Security

In these economic times, one really has no sense of security in a typical job. I’ve seen it too many times – people proclaim that no one can do what they do and that they’re too valuable to get rid of. And then….they get the boot….

Rather than depend only on an emergency fund for that potential job loss, I suggest that you focus on two more aspects of financial security.

1)      Live well below your means

2)      Build a residual cash flow

Live Well Below Your Means

My wife and I both work and we make a point to live off only one of our incomes. That way, if one of us loses a job (it’s happened before), we’re still completely fine financially. Maybe you can’t bring your expenses down to half of what you’re used to, but make an effort to reduce them and you’ll feel much more secure in the event that a job is lost.

Build a Residual Cash Flow

Instead of having just one or two incomes, why not go for three or four? That way, if one of your jobs says “see-ya”, it won’t be that big of a deal. My wife and I both have full-time jobs, plus she does photography on the side and I earn quite a bit of money through various passive income ventures. Now this is a true set-up for financial security, wouldn’t you say?

Perhaps you’re strapped for time and cannot possibly start another venture. If this is the case, then at least have some potential income options written down. You don’t want to lose your job and have no possible income sources. This is how you deplete your emergency savings in record time and make friends with the repo men…

Have you set up an emergency fund in the event of a job loss? Have you done anything more?

article photo by cooldesign

Filed Under: Personal Finance Tagged With: credit card, Credit Cards, economic history of the united states, Economics, extra income, finance, financial, financial independence, financial planning, Financial Security, human interest, income, labor, late 2000s recession, passive income, protect, simple steps, subprime mortgage crisis, terrible

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