Is a recession headed our way? It’s highly likely. During 2020, the world has been through some serious ups and downs that are being reflected in financial markets across the globe. The media is fuelling the fire with its plethora of doom and gloom stories, and many people are understandably nervous.
So, what can you do to protect your finances now, and for the future?
7 steps to safeguard your finances against the impact of recession
Take a deep breath:
Recessions happen. Economies sink, then rise again. Regardless of the picture painted by the media, Australia has been through many recessions and has come out the other side. It’s important to recognise and accept this, then create a plan to protect yourself as much as possible as you ride out the coming months.
Be prepared:
Knowledge is key to survival. Understand your finances – budget, cash flow, debt and investments. By doing this you will be more aware of where you can cut costs if you, your business or workplace is affected by the recession.
Get rid of your debts:
Pay off as much debt as you possibly can. Review your credit cards, personal loans, mortgage and any ‘buy now, pay later’ agreements to reduce your monthly expenses as much as possible. That way, if you lose your job, or your financial situation becomes difficult, you’ll be in the best position to manage your day to day expenses.
Save:
Add to your emergency savings fund as much as possible. The old adage of ‘save for a rainy day’ certainly applies here – you know ‘rainy days’ are coming so be prepared and have some savings as back up. Cancel unnecessary subscriptions or services, spend less on ‘luxuries’, or sell any items you don’t need. Every little bit helps and whatever you can save now will help buffer any financial strife you may encounter in the future.
Keep your investment portfolio:
If you are nervous, seek financial guidance from a trusted advisor but remember that investments are a long-term strategy and recessions are usually relatively short-lived. Traditionally, share prices surge following a downfall and it’s important to hold your nerve and keep your long term and retirement goals in mind.
Added to this, if you have savings you can invest, do so when shares drop and you can buy stock at lower prices. Be ready to reap the benefits when they rise again in the future.
Boost your skills and qualifications:
Do whatever you can to increase your value in the job market. Study online, upskill, take short certified courses to bolster your career in preparation for the potential employment cuts that tend to accompany a recession.
Get creative:
Is there anything you can do to earn extra money and diversify your income streams? Whether it involves starting an online business ‘side hustle’, or picking up some freelance or part-time work, every additional dollar you earn will help you create a buffer against financial uncertainty.
The threat of recession is bound to create anxiety. It’s perfectly natural. But it’s incredibly important to focus on what you can control, rather than what you can’t. Keep a long-term view in mind and remember your goals. A positive and proactive attitude will help you maintain a confident financial outlook, no matter what the future holds.
Worried how recession will affect your investments or retirement plans? Contact TruWealth on 03 8648 6534 or email contact@truwealthadvice.com.au