Rumor has it that a recession is coming, if not already here. But wait! What is a recession?
The economy comes with peaks and troughs. Troughs are times of economic downturn when the businesses may experience decrease demands for their products and services, which in turn leads to lower profits and layoffs. You can read more about how recessions come about here.
Recessions come and go with the ups and downs of the economy. Unfortunately, they are
unavoidable. The good news is that, there are steps you can take to protect your finances. Here are some practical steps you can take:
1. Be willing to pivot
There are industries that are less affected than others in recessions. Those are usually industries that involve necessities. Look into how you can get into those industries if you need to. For example, if you find yourself on the job market during a recession, it may be worth it to look for employment in an industry that is more stable.
You can also upskill yourself, what steps can you take to become better at what you are currently doing or picking up a new in demand skill? Remember, if have the skills to solve a need or a problem naturally, there should be financial gain to you.
2. Cut down on discretionary expenses
I know there’s a big push on the luxury lifestyle as promoted by social media, but now may not be the time to splurge on non-necessities (enjoy your life of course, money is meant to be spent) but do so wisely. Taking a vacation soon? Maybe cut down the days to save a little or look for better deals to save on hotels and flights. Do you like to shop a lot? Try to find ways to shop strategically and smarter.
3. Avoid adding on new consumer debt if possible
In a recession, income and job security may become volatile to lay-offs. Avoid taking on unnecessary consumer debt if possible. Instead, work towards buffing up your savings and strategize how you can invest if you are presented with a good opportunity. Remember the last major recession of 2008? A lot of millionaires were made and that’s because while some people where losing their homes and livelihoods, those who had the opportunity to leverage their savings were able to invest strategically and make a lot of returns. So plan ahead now, instead of adding on new debt, save a bit more so you can have an opportunity fund.
4. Start your tax planning and investing strategies early
This goes along with the last point. Tax planning should start from the beginning of the year and not after the tax year has passed. For example, you may have some stocks/investments that have become worthless along with some capital gains, plan ahead so that you can take advantage of these losses, to reduce your potential tax liability. Remember during a recession, you want to keep as much money in your pocket as possible.
The advice given here is for educational and general purposes only, please consult with your CPA to consider the best course of action for your specific situation. You can setup sometime with our CPA here.