What is a Recession?
A recession is a phase or period of financial crisis or when businesses do not generate ample revenues, and this leads to unemployment, Demand- supply chain disruptions, and many more, which goes on. A recession usually occurs for long durations, and it becomes difficult to anticipate and plan with such a crisis on the plate. A typical cycle consists of Boom to recession to depression to recovery to Boom, and the process goes on. So this clears that what’s coming our way next is a depression with global crises at hand.
The last recession was in 2008- 2009, and the other one is predicted in the First quarter of 2023. So we shall be prepared in advance to stay balanced and unaffected in that period, which we have no clue about because we do not know until when this will last. And we will be discussing tips for preparing for a recession in 2022-23.
Do you know what a recession looks like?
Let’s discuss in detail what a recession might be like and see if we are in a slump right now.
In a recession, at first, inflation hits, things start becoming expensive and sometimes unaffordable due to increased costs Of course. Now, as the impact of inflation, the demand decreases but the supply or production remains constant at first then it gets hit, and the cycle gets disturbed. This is followed by less supply and less production, leaving people unemployed and companies with less sales and growth. A situation of stagnancy hits the economy and people. Finances to bills, everything gets disturbed.
And If a severe natural calamity is predicted or occurs, that adds to the problem by hundreds of times, robbing people of their life, home, and opportunities. The after effect of a recession depends upon the length of a recession and the financial strength of both the individuals and the economy. Given the average recession time period as 17 months as per NBER data on forbes, the aftereffects may last up to 1-2 years or more on an individual and go more long term for an economy depending on various factors such as population, National income, reserves and exchange rates, etc.
Here’s how to plan and start preparing for a recession in 2022
A recession is a scary event, yet we can beat it with strong willpower and plan. There are critical steps that need to be followed to overcome the crisis and ensure a balanced bank balance. Let’s dig into it:
Knowing your existing and upcoming money
This first step is to find out how much money you have and your future financial income (at least 5-7 months).
Find out how much cash you have in hand or at home. Find your bank balances in all your accounts. Calculate your highly liquid investments as well. Total that money and have a regular update to that, given your anticipated incomes as well as fluctuations.
Knowing your expenses and debts
Calculate your daily expenses from food to cleaning to lawn maintenance, anything and every little thing for which you might have to pay in the near future (at least the next 5-7 months). Prepare a table or a chart, or it may be as simple as a list and total. Now prepare a separate list for existing big expenses such as a student loan or upcoming significant expenses, e.g.: buying a car or a house, etc. Total that up as well, and keep that updated timely.
Knowing your monthly savings and budget
Now you need to calculate how much you can save given your monthly income and expenses.
To compare that to how much you should save, read our article How much you should save? Then, make a list of those expenses that are avoidable and can be reduced or cut off. And begin working on cutting those little expenses, e.g., making your own coffee at home rather than going to a Starbucks every day or avoiding that expensive bag or outfit you buy every month.
Avoid spending money on luxuries and even some comfort goods depending upon your lifestyle and preferences.
Building up emergency funds
Now start setting money aside for emergency funds which can be used as per need or emergency in the near future or later as well. How many emergency funds do you need? In the beginning, start with saving at least 10 % the first month and increasing with time. Of course, this will have to be increased with the number of people dependent on you as well. To read in detail, go to our article Personal Finance: Basics and tips.
Career and employment
Focus on your existing job and build an updated resume and stay well in your career. Avoid getting fired or leaving a job if possible, given your situation. Meet and greet people. Maybe if you are working part-time, switch to a full-time job or take up one more new job to support yourself or as a backup as you feel or prefer. Keep an eye on your company’s employment situation and make connections and avoid controversial situations if you think you are on the verge of being fired or laid off in such a recession. Note: This was not meant to offend anyone in any matter.
Investment and Portfolio
Now, If you have savings and want to invest, look out for safe investment options, for eg, gold. To know about safer options, reach out to experts and professionals in your contacts, friends, and family. Listen up to what everyone has got to say. Then comes the most critical part. Check it out for yourself. Go look out for that company’s shares or industry. Watch out for promoters of the company and determine a pattern.
If you have existing investments, keep a close eye on them and stay updated, it’s your hard-earned money, do not let it go just because you did not look out for its safety. Make sure it stays intact if it does not grows. To know existing safer stock options go to : 9 Stocks you can invest into as Inflation Protection in 2022
Opportunities
Now to earn extra money, start something you think can earn you extra bucks with no investments yet make a significant difference in your financial stability in recession. For ex: start a thrift store online or maybe Write a book, or a podcast or drop shipping or maybe food delivery or teach a skill to students. This will not only help you discover yourself as a person but will support your finances. This might not be a significant thing for some people, but this can pay for your monthly groceries or even as little as your coffee expenses, laundry, etc.
Follow these tips to stay balanced and do not be scared. You need to believe in yourself and God! Remember: money comes and goes and we can earn again with the right means and plans!
Thank You for reading!
This was all from your side, but we would love to hear what you all have to say. What do you think can be helpful in such a crisis? Comment down below to let us know!
Sukhpreet Kaur
