An economic recession can happen at any time. While “recession” is defined in economic terms as two consecutive quarters during which gross domestic product declines, its effect on people’s lives can be quite profound. Product shortages can lead to declining revenues and an increase in business closures. Economic downturns don’t only affect business owners. Employees, the self-employed, and small business owners are also at a higher risk for unemployment and financial hardship.
Economic uncertainty can be disconcerting, especially for those who may have already been struggling to make ends meet. Dealing with a sudden but significant financial downturn can mean hardship for many people, especially for those who were not able to adequately prepare their finances for emergency situations.
While no one can control when an economic downturn occurs, there are ways that you can prepare, just in case. From getting a financial planner to just modifying spending habits and saving more, follow the tips outlined here to protect your finances long-term.
Sharpen Your Skills to Prepare for the Future
When the economy begins to experience a downward shift, brushing up on your skills is a good way to stay competitive in a tight job market. You can play smart at work if you hone in on your development. Be sure to show an interest in learning new things at work and building your skill level, as both can keep you from becoming professionally stagnant.
Keeping your skills sharp means that if your company downsizes or announces layoffs, you will be in a better position to find another job or be deemed essential to your current employer. If you are able to hold on to your position during an economic downturn, you will set yourself up for career advancement once things improve. When you can keep your main source of income during an economic contraction, you’ll already be better off than many others.
Another way to protect yourself from a recession is by focusing on your education and skills. Research has demonstrated that people who have advanced degrees or multiple skill certificates are better able to get through a recession than those with only a high school diploma.
Beef up Your Emergency Fund
Job loss can cause many people to struggle financially, particularly during a recession when it may not be easy to find a replacement position. This is where the importance of an emergency fund comes into play. Having backup savings in the event of something as major as an economic downturn can give you much needed peace of mind.
Paying attention to the news can help you prepare for an impending recession. Instead of being reactive, be proactive by adding more to your emergency fund. No one knows how long a recession will last, but the more you put into your emergency savings the less you’ll have to worry during hard times. Add an amount that you feel comfortable with, but the goal is to increase what you save to be better prepared.
Having a few months’ worth of expenses in your emergency fund can provide you and your family with an extra cushion should you lose your job. This can help you keep current with your bills while you search for new work. It’s easier to focus on finding employment when you don’t have to worry about how bills will be paid or how you’ll take care of your family.
Don’t Let Stress Win
The first emotion people are likely to experience during a recession is stress. It is all too easy to begin to worry about all the factors associated with recession, but you shouldn’t let stress get the best of you. Knowing that you have taken steps to prepare may alleviate some of your stress. This can decrease the likelihood that you will have to deal with the negative consequences stress can have on your physical and mental health.
The negative health consequences of stress also mean that self-care is important during this time. Meditate, practice yoga, or engage in other mindfulness practices. This can help you remain calm and prevent you from engaging in panic behaviors that can have a negative impact on your finances.
No one can predict exactly when a recession will happen. However, following these tips will help ensure you have all the tools you need to make it through already in place when one does occur. If you find yourself out of work, take the time to re-examine your goals, gain some new skills, and increase your financial knowledge. As you improve your perspective on money, you will inevitably create good habits that will leave you better equipped to make it when times get tough.