Recession comes once every 10 to 12 years. While there are many signs predicting when it will happen, sometimes the timeline may shift a little due to human manipulation or unforeseen circumstances. Recently there has been more and more talks about an upcoming recession. I am no fortune teller, nor am I a professional in economics. I have no idea when a recession will come. But I believe we can all agree that sooner or later, a recession will definitely come. Afterall, the market is a cycle.
So what can we do to prepare for it?
Find An Alternative Source Of Income
It is important to have multiple sources of income. If you do not already have one, and are just depending on your job, I would suggest finding an alternative source of income quickly. This additional source(s) of income is preferably a stable one. It may not be as high as your current main income, but it should have enough to ensure you and your family do not starve to death. During recessions, people get retrenched or have their salaries cut as companies and factories simply do not need as many people to continue with the production of goods and services. What will you do if you got retrenched and your salary got cut? When times are going well, look for an alternative source of income as a backup. It can be doing part-time ecommerce business, or part-time private tuition (this is actually good money), or simply just renting out an extra room in the house.
Cut Down Spending
Many times in our lives we waste money on many unnecessary things – expensive restaurant meals, luxury bags, fanciful cars etc. Not that we should not go for all these. It is alright to reward yourself appropriately and suitably in line with your income and goals. But when you spend too much, you are unable to save up. Not only that, some people go into debt because of spending too much. Credit card debts, instalment plans and loans from legal financial institutions or underground lenders to support the excessive lifestyle. If you are spending excessively now, do what you can to cut it down. Focus on the necessities. You may also wish to track your expenses to see where and how you spend your money, and then review in which areas you can cut down the spending.
Get Rid Of Your Bad Debts
There are good debts and bad debts. Good debts are debts that help you earn more money, such as a business loan you took to expand your business, with the end result being more income generated. Bad debts on the other hand do not generate income for you, and you have to pay interest with it. Your car loan and your credit card debts are example of bad debts. All debts comes with interests, and your bad debts which do not generate any income for you mean that the longer you hold on to them, the more interests you have to pay. Pay off your bad debts as soon as you can, so you do not spend any unnecessary money on interests. Start with the highest interest debt first. Cut down your spending and pay off as quickly as you can. It is a different kind of stress when you owe money as compared to when you have no money. You also have to think of the situation where you suddenly lost your job and you have a mountain of debt to pay off. Even if it is a necessary debt such as a housing loan, you will also need to think if you are able to pay them off during bad times. Many people buy expensive houses with mortgages maintained by their monthly salary. While buying a house in itself is not wrong, buying an expensive house and have everything hanging on that one income is a dangerous thing to do. When you have no income, paying off a smaller housing debt makes a whole lot of difference as compared to paying off a big housing loan.
As mentioned above, you may lose your income source during recessions. When that happens, you still need to continue living. Your family still need a house to stay and food to eat, your children still need to go to school. All the bills and perhaps even taxes still need to be paid. If there is no money, your family and you will be in for hard times. So save up as much as you can, until you get a minimum of 6 months emergency savings – money that can last you for 6 months should you have 0 income. Of course, do not just stop at 6 months emergency savings. Save up more if you can. Adults can suffer, children should not. It is the responsibility of the parents to plan ahead and take care of their children, during good and bad times. If you do not make the sacrifice to save up, your children will be the sacrifice. Even if you have no children and are single, you would at least like to have a decent place to stay and decent meals to eat (note: decent is not fanciful). So, make the necessary sacrifice today so you will not need to suffer as much tomorrow. Save up.
Review Your Trades And Investments
When times are good, any company can fly. When times are bad, only the ones with a good foundation will be able to survive. Look at your own portfolio, which one of those are the ones which can survive a recession and which are the ones which cannot. Penny stocks and shitcoins may earn you a lot of money during good times, but they will crash big in bad times. Even if they are decent companies and crypto coins, you will also need to look at their fundamentals to determine if they will make it through the recession. If you are not confident, then get rid of them. Many companies never survive a recession, and you do not want to be one to lose all your money. I usually buy from the spot market these days without leverage, but if you are trading on margins or on futures, you may want to consider scaling it down to a safer level or just stop it completely. Preservation of capital should come first. Review your portfolio and rebalance them so the majority of them will be there through good and bad times, and that you are able to hold on without worry through a crisis even if they drop in value temporarily. For riskier trades, either scale it down or remove them completely. To be safer, just play the spot market with your available cash.