Surviving a recession in 2022 (Coming out a winner)

Is your company suddenly unable to bring on new workers? Have your investments
stopped increasing in value, as they had been just a few months ago? With rising
debt levels, fluctuating markets and dropping oil prices, roughly speaking, this
unease in market indicators is nothing new. Even millennials are on their way to
witnessing their third recession by the time they are in their thirties. A recession is
expected in 2022, and it's said to be a nasty one. But since economic booms and
busts go together, an economic recession is "inevitably" on the horizon.
You could lose everything if you aren't always prepared for an economic
catastrophe. Many people experience the unexpected loss of a job that seemed
secure at the time. They risk having their retirement funds halved and even losing
their home to bankruptcy if the bank decides to foreclose. All of these have the
potential to negatively impact one's health and lead to relationship troubles.
While we can't stop a recession from happening, we can take steps and strategies to
lessen its impacts and strengthen our finances in the event one does. For individuals
who are already financially secure, a recession can be a time of great opportunity.
They may be given the chance to accumulate fortune beyond their wildest dreams.
Moreover, having some money saving tips under your belt could be a lifesaver so
that that when the worse comes to worse, you’ll know how to survive a recession.
Thankfully, just like any other skill, learning how to financially prepare for an
economic downturn is pretty easy, as long as you are willing to learn.
Hi! I hope you enjoyed my previous video and are happy to be back. Welcome back,
or if you're just joining us: we're Finance Bureau, your one-stop destination where we
talk about anything related to cryptocurrency and personal finance. I'm glad you
could make it. For this video, I will talk about how to recession proof your finances
and come out of it thriving. Taking precautionary measures to protect your finances
can make a world of difference, so before the next financial downturn hits, make sure
you take some these steps. Let’s get right into it shall we?
These days it is hard to turn a corner without bumping into predictions of a 2022
recession. The word recession is everywhere, on the news, on the internet. But
before we walk you through the step-by-step process, let's break down the concept
of a recession for the layman. In technical terms, it can be two consecutive quarters
of declining Gross Domestic Product (GDP). The National Bureau of Economic
Research (NBER) describes a recession as “a significant decline in economic activity
spread across the economy, lasting more than a few months, normally visible in real
GDP, real income, employment, industrial production, and wholesale-retail sales.”
To provide a deeper dive into the concept of a recession, in layman's terms, a
recession is when there are higher interest rates in debts, businesses lose a lot of
money and cannot make a profit, high unemployment rate, housing prices drop, and
people lose their homes. The stock market significantly plummets when investors
panic, lose faith and pull their money out of the market. So, in a nutshell, the entire
economic system experiences a financial slump that may last anywhere from a few
months to a few years.
One thing you could to recession-proof your finances is to save for an emergency
fund. In its most basic sense, an emergency fund is the stockpile of money you’ve
set aside for the sole purpose of helping you get through your day-to-day living in the
event of an ‘emergency’ or financial turmoil. If you've got lot of money stashed away
in an FDIC-insured, high-interest savings account, not only will your money be safe
from market fluctuations, but it will also be quite liquid, providing you access to funds
in the event that you lose your job or have to accept a pay cut. An emergency fund
provides a safety net to fall back on whether your hours have been cut, you've lost
your job, your business isn't earning much profit, or you made some really bad
financial decisions; this allows you to ride out the financial crisis and emerge
stronger than before.
If you can, you should save three to six months' worth of your income so that you
can make ends meet in times of economic hardship without resorting to debt. If you
have your savings, you won't have to borrow as much money to deal with
emergencies or if you lose your work. When a recession occurs, banks tighten their
lending standards drastically. When these situations occur, you should use your
emergency fund to cover necessary expenses while maintaining your discretionary
spending to a minimum so that you can put more money into your emergency fund
as soon as possible and thereby restoring it. During a recession, you probably won't
be able to put money aside for savings since you'll be preoccupied with other more
pressing money matters, so it's best to start saving now before the next financial
downturn slams on you.
The next habit that you should consider practicing, and I always say this in my
videos, is to live within your means and make do with what you’ve got. Sadly,
many people fall into the trap of raising their living expenses at a faster rate than
their income, which traps them in a constant state of financial strain. However, when
you downsize and learn to live frugally, your savings will grow, and you won’t have to
struggle adjusting your lifestyle when an actual recession hits. If you make it a point
to spend less than you earn every day, you'll be in a better position to weather price
hikes in necessities like gas and groceries without going into debt. Always remember
that debt begets more debt when you can’t pay it off right away.
To solidify this principle, if you're married and have two sources of income, try to live
off only one of them. Try to see how quickly you could pay off your mortgage or how
much earlier you could retire if you had an extra $40,000 a year? When a recession
hits, and if one of you is laid off, you'll end up doing fine and will not struggle as
much because you're already used to living off one salary. This will put your savings
to a halt, but it does not stop you from living within your means.
Starting a frugal lifestyle is not that intimidating, and you can actually start right
away. One option is to use public transportation more frequently and reduce your
family's car ownership from two to one. By making this selection, you may save as
much as $9,000 annually. Or, if you really need two cars, trade in one for a
subcompact model that gets better gas mileage. It's also possible to save costs by
downsizing your home and minimizing your shopping habits.
Another tip is to diversify your income by having multiple sources of income. When
covering their mortgage, vehicle payments, and other expenditures, millionaires don't
put all their eggs in one basket and risk losing their income by relying solely on a
single paycheck from a single job. They have several other ways of generating
income. This could also apply to the average American. Having a side hustle is a
good idea even if you have a stable and rewarding full-time job. Considering the
horrible situation of job security in today's economy, it's clear that more jobs equal
greater job security.
For example, if you have no other source of income and only depend on this one
paycheck to cover all your bills and pay your debts, you run the risk of losing that
single source of income if the economy takes a nosedive and you suddenly lose your
job. Basically, what I’m trying to say is that it can be very beneficial for you to have
multiple sources of income. You have a safety net if one of your income streams
begins to dry up or disappear entirely. In fact, if your spouse has a job in a field other
than your own, you already have an income diversity without having to work two
jobs. But if you want to earn more money on your own, you can do it in several ways.
You can start by renting out a room in your home, renting out a space in your
garage, or even purchasing a revenue property and renting it out. However, you
shouldn't limit yourself or feel constrained by these examples. You can find more
ways to expand your income by capitalizing on whatever ability or talent that you
have.
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So, going back to the video, it is also a helpful tip to establish a budget and pay off
your debts. Debt is a heavy load to carry. And during a recession when jobs are few
and money is short, those large debt payments will just add more stress to an
already stressful position. If you have debt and are having trouble meeting the
payments, your level of debt may increase dramatically if the economy were to enter
a recession. The stakes are high when carrying a lot of debt because even a tiny
shift in your situation could significantly impact your capacity to pay. A loss of income
or an increase in interest rates, in addition to banks reducing credit limits, could
make it challenging to keep up with payments even if you can pay them right now.
A realistic budget that includes all household income and expenditures is the first
step toward eliminating debt. If you're not making as much progress in paying down
your debt, or worse, if you're really adding to your debt, a budget can show you
where you can make cuts so that more of your income goes towards paying off
debts.
Additionally, when lending standards are tight, only those with excellent credit
histories stand a chance of being granted a mortgage, credit card, or other form of
financing. Maintaining a high credit score calls for responsible financial habits, such
as paying payments on time, keeping your oldest credit cards open, and minimizing
your debt in proportion to your available credit.
Moreover, rather than putting all of your extra cash into paying off the low-interest
debts as soon as possible, it makes more sense to focus on paying off the high-
interest debt first. Instead of paying off debt at an interest rate of 3%, consider
investing the excess money you have and see if you can earn a return of 10%. Some
people fail to account that your monthly needs will be incredibly low after you have
very little or have no debts. If you don't have ongoing debts like a car loan, school
loan, credit card, or mortgage, your monthly expenses will be much lower than they
would be for someone in serious debt. Only then, are you be able to rest easier
knowing that you've taken steps to protect yourself in the case of a recession.
Since we are already talking about investments, another helpful tip is to diversify
your investments as much as you diversify your income. My channel also has
videos on investing and the stock market, so if you want to learn more about it,
please feel free to check them out. So, going back to the discussion, the
psychological torture of riding out market declines will be eased if your money is
spread out and not entirely at risk if you lose some of it here and there. You should
go through your investment portfolio and ensure that your money is invested in
various industries and even different kinds of assets. This will ensure that your
investments are less likely to be negatively impacted by a drop in the market and
that your losses will not be as severe.
One has a competitive edge if they own a property and have some savings: You
have cash on hand and money invested in real estate. Specifically, make an effort to
construct a portfolio consisting of investment pairings that are not highly correlated.
This means that when the value of one investment goes up, the value of the other
investment goes down, and vice versa, like stocks and bonds. This also implies that
you need to consider investing in asset classes and companies unrelated to your
major career or source of income.
An additional tip is that when you invest, think smart, and think about the Long Term.
And if the market plunges, and your investments fall by 15%, then what? You can sit
on it and incur no loss if you choose not to sell. As the market is cyclical, you will
have several opportunities to sell at a high time in the future. You could end up being
very pleased with yourself if you buy while the market is down. Having said that, as
you get closer to retirement age, you should make sure that you have enough money
in liquid, low-risk investments to retire as scheduled and allow the stock portion of
your portfolio a chance to recover. Keep in mind that you won't need all of your
retirement savings at age 66. When you're 66, the market can be down, but by the
time you're 70, it might be up.
When things are bad in the market or economy, that's when you can make some
serious money. Keep your greed in check when others are scared and your fear in
check when others are greedy, as Warren Buffett once famously put it. Investors in a
good position to purchase assets at a discount typically reap large rewards when the
assets recover to their previous highs. Investing 101 dictates that you should buy low
and sell high, which is why purchasing the dip makes sense. Buying stocks when
you see a sharp decrease in prices to hang onto them for a very long period is a
simple approach similar to market timing, although it can be challenging. You should
only do this if you have a large sum of money, you are willing to lose in an
investment, but for those with spare cash, a recession could be a great time to take
advantage of this.
So, this is the end of the video. I hope you enjoyed watching it and that you picked
up a lot of helpful information. But before you leave, I ask that you give this video a
thumbs up and subscribe to my channel so that you can watch more of my videos in
the future.
One last thing, if you put these financial practices into action, you will not only benefit
from them during a period of economic recession, but you will also benefit from them
regardless of what is happening in the market. Taking cautionary steps today can
make a huge difference tomorrow regarding your financial security. A downturn in
the economy is nothing to fear if you know how to recession-proof yourself and your
finances. You may relax knowing that you are equipped for everything that comes
your way financially, even if you can't control the economic situation.
I’ll see you on the next one. Thank you so much for stopping by!