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10 Money Rules to face economic recession

Have you ever wondered what your financial situation will be like in a year, even just a few months? In the current context, it is unavoidable to worry about the risk of an economic recession. However, it is important that you start preparing now so that in the event of a recession in the next 6-12 months, you will be in the best position with the money amount you have.

Table of Contents

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1- Build an emergency fund for 12 – 24 months
2- Minimize high-interest debt
3- Prepare for a loan
4- Negotiate soon if the mortgage loan is about coming due
5- Stock up as many essentials as you can
6- Build an emergency fund before investing
7- Shifting to jobs not affected by the recession
8- Generate more income sources
9- Resell unused things
10- Enhance your self-worth

According to Ann Kaplan, the founder and CEO of iFinance (the parent company of Medicard, Petcard, Dentalcard, iFinance Tech and iFinance Home Improvement), a PhD in business and fintech entrepreneur running a multi-million dollar company, an economic downturn can still bring an opportunity for you to arrange your finances in a stable way.

At below, Kaplan shares some money rules to increase your chances of surviving after the economic recession.

1- Build an emergency fund for 12 – 24 months

When the economy is stable, experts recommend saving enough money to cover living expenses for 3-6 months. However, Catherine Valega, a wealth and financial planning consultant, suggests that employees should save enough money for 12-24 months, in case in case they get fired.

2- Minimize high-interest debt

Try negotiating credit card interest rates with your card issuer, especially if you're a long-term customer and have a good history of on-time debt payments. If negotiating a lower interest rate isn't a viable option, consider transferring your debt to a card with a lower interest rate. Or you can consolidate debts to reduce monthly payments and help disburse a necessary money amount in case of an emergency.

3- Prepare for a loan

A recession is not the time to panic and cancel your credit card. During a recession, many people need to borrow money to get through the tough times, and that's no problem at all. However, when interest rates rise, banks take a closer look at your credit score which make it harder and more expensive to approve loans.

10 Money Rules to face economic recession

So make a plan to increase your credit score. In other words, making your payments on time and keeping your balance low are the most important factors in building a credit score.

Credit card using time is also a factor in building your credit score. Even if you transfer your balance to another account, keep your credit card active.

4- Negotiate soon if the mortgage loan is about coming due

Fixed interest rates on mortgages in the US have been on an upward trend since last year. No one can be sure that interest rates have peaked, so take advantage of times when interest rates are low, in case interest rates continue to rise.

Also with regard to mortgage loans, many people believe that paying off debt during a recession is a smart thing to do, but Kaplan says that you should pay down your debt to a minimum to keep some of the cash. Why? Because if the worst case happens and you lose your income source, then the money amount you save can help cover your expenses until you have financial stability again.

5- Stock up as many essentials as you can

If inflation continues, anything that drops in price now that you still need to use later will save you even more in the future.

6- Build an emergency fund before investing

Don't start investing for the long term until you've built an emergency fund. Losing income can leave you in debt, and high-interest debt can affect investment profit.

10 Money Rules to face economic recession
And when you do invest, invest in industries that are not affected by the recession or invest in reputable businesses. Investors can consider investing in sectors that often perform well during economic downturns such as consumer goods, utilities, and healthcare.

Furthermore, you should diversify your investment portfolio by buying assets having low correlation or opposite in pairs. This can help minimize the money amount you lose in the short term if the stock price continues to fall, as one asset type will tend to increase in price while the other will decrease in price.

7- Shifting to jobs not affected by the recession

If you're considering a career change, look for positions that won't be affected by the recession. While no job is completely safe during a recession, some jobs in areas like essential services are more secure. Alternatively, you can think about careers like medicine, teaching, law, accounting, public safety, utilities, waste management, and jobs that keep society running.

8- Generate more income sources

One of the biggest risks people face during an economic downturn is loss of income. Take that risk out by getting more jobs. You can find a second, part-time job with flexible hours like a waiter or bartender. Or you can get a job with apps like Uber, TaskRabbit, Instacart and Rover. Moreover, you can rent out unused houses or rooms to earn extra income.

9- Resell unused things

Selling old things is an activity that thrived during the Great Recession. Sell items that you no longer use to second-hand stores on e-commerce platforms like Poshmark, eBay or Kijiji.

10- Enhance your self-worth

Improving your skills or upgrading your education will make it easier for you to get a job in a tough job market. Sign up for classes, seminars or volunteering. The soft and hard skills you gain from such events will make your resume look better.

Remember that recessions don't last forever. If you lose your job or your income changes, you may have to cut your spending significantly or must use your emergency fund. But then you can always earn that money back. Since 1990, an average recession has lasted about 15 months.

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