Everything goes through a cycle, which also applies to economic conditions. Inflation and recession are part and parcel, which will happen without exception. It’s just that predicting these cycles requires some elbow grease. Still severe or mild, these situations can land you in deep trouble with your finances without proper planning. You can avoid this by making your investments and retirement savings recession-proof through different steps. Let’s explore them for a better understanding and clarity.
- Create an emergency fund!
Your savings account should have an amount enough to cover your living expenses for a few months or one year. It will keep you afloat even if you lose your job in a recession. You can use the funds to pay your bills while searching for another income stream. Experts recommend savings account with high-interest rates can be the best place for keeping this sum. Your dollar will have its value intact and be accessible whether you need to pay for any medical emergency or employment loss.
- Cut down on fixed expenses and debts!
Settle your medical and credit card bills that charge high interest. If there is any difficulty, you can speak to your lender to negotiate better terms for the interest rate. At the same time, watch out for areas where you spend more, such as mobile phone bills, car insurance, and internet service —people who buy homeowners insurance and auto insurance bundle these policies to lower their premium payments.
- Open a self-directed IRA!
Putting all your investment money in one asset class exposes you to significant risks. Diversify your investment with a self-directed IRA. You can check for some knowledge. This type of retirement savings plan tends to be recession-proof, allowing you to put your money into alternative assets. You can think beyond stocks and bonds. You can trade in precious metals, real estate, and more with this account type.
- Add more income streams!
A full-time job is satisfactory. But additional revenue steam can be crucial to face unwanted scenarios like economic meltdown and volatile market conditions. Think of anything that helps you earn more, such as online sales, consulting services, ride sharing, etc. Since a recession can affect your job security, you will not want your finances to suffer. An additional income stream can be your solid cushion during those difficult times.
Of course, no one wants to think about the worst scenario. But it’s better to prepare for the worse to avoid significant setbacks if something unpleasant occurs. As a working professional, you may worry about your job. You will think about the market condition if you have reached retirement age. Loss of income will increase your dependence on your savings. Because unemployment risks tend to be high during economic meltdowns, you must also hone your investment strategy and save enough for retirement.
Some people stop adding money to their retirement accounts during difficult financial situations. But experts advise one to continue contributing to these accounts to enjoy the rewards when market conditions improve.