Recessions are every economy’s worst nightmare even though they all eventually recover from them. However, it doesn’t have to be that way for your financial portfolio. With the right amount of planning and foresight, you can weather recessions with resilience.
There are some key habits you need to develop as early as possible when it comes to saving and investing. And if you do, recessions can feel like a vacation. Here are some pro-tips to fortify your financial portfolio against the tides of economic slumps.
#1. Have An Emergency Fund
Saving for a rainy day is the most fundamental rule of money management. There are a couple of ways to go about doing this.
If you have a large sum of cash lying around you could invest it in a high-interest fixed deposit. Although keep in mind, there’s a fixed tenure. The tenure can be for 6 months to 10 years depending on your bank but the biggest advantage of fixed deposits is their security.
Not only does your money remain safe but you also receive annual interest payments. This grows your wealth and provides some liquidity while the bulk of your wealth remains tethered to the bank.
#2. Repay Debts
This goes without saying but the longer you keep your debts the more expensive they get. And this is true even for interest-free debts because everything becomes more expensive during a recession. Repay your debts, starting with the ones with the highest interest. These include your credit card bills and personal loans. It will improve your credit score and save you a lot in interest payments over time.
#3. Live Within Your Means
When you have a large amount of cash lying it can be really tempting to spend more. But that’s a slippery slope. Do not give yourself a lifestyle you cannot sustain forever with the money you have now or the income you’re making now.
It does the worst kind of damage to your finances and makes recession significantly harder to get through in one piece. This rule also takes us back to rule #1 which is to keep setting aside money regularly for future emergencies.
Buy a car that is not too extravagant, choose a neighborhood that fits in your budget and only make expenses that you have saved for.
#4. Have an Additional Stream of Income
Relying solely on one stream of income whether it’s your salary or business profits is not the most prudent strategy to recession-proof your finances. You need to create additional or side incomes to support you in times of poor business or low job security which isn’t uncommon anymore. Diversifying income helps hedge such risks. This leads us to the next point.
#5. Acquire New Skills
With technology transforming industries at an unheard-of pace today than ever before it’s important that you don’t become a one-trick pony. By acquiring some more in-demand or growing-in-demand skills like learning new languages, designing websites, managing financial portfolios, you increase your job security.
Conclusion
Recessions can get very ugly and though rare, can sometimes also stretch into economic depression. It’s crucial that you begin preparing for the worst as soon as you can.
