How to Prepare for a Recession

According to Forbes, a recession is a significant decline in economic activity that lasts for months or even years. A recession is usually declared when a country’s economy experiences a negative gross domestic product (GDP), sees its levels of unemployment rise, and prices go up but sales go down for an extended period of time. Recessions are an unavoidable cycle of the economy.

Some say we’ve already entered a recession; others say it’s yet to begin but it obviously depends on the country you live in.

What’s certain, though, is that inflation is at an all-time high and prices have increased significantly for everything, not just resources that are getting scarcer – like energy. Inflation in the Netherlands reached 14.5% in September 2022 meaning prices for everything went up even more.

In times like this, sound financial decisions are crucial so you can get through difficult moments.

There are a few things you can do now to prepare for a recession and be better placed to face it.

5 Things to Do to Prepare for a Recession:

Expense Tracking

Be on top of your spending and note down in a journal each and every expense. Categorise your expenses so you can spot areas where you might be overspending unnecessarily. These are then the things you can cut down on.

Monthly Budget

Plan your month in terms of what you need to pay for so you spend wisely and allocate your money toward what’s really a priority – this is how you set your monthly budget. This includes setting money aside for savings as well not just your regular bills and debt that you need to pay every month.

Emergency fund

If you haven’t done this already, you should start saving regularly to gather a fund of 3-6 months of living expenses. This will ensure that you have some money set aside if an emergency like a job loss arises. Lots of people found themselves in a very hard situation because they didn’t have an emergency fund as a safety net when the COVID pandemic started.

Avoid debt

You may already have debt so you need to ensure you continue to pay the minimum amounts as required, however, a tough financial situation is a tempting moment which gets lots of people to ammass even more debt to get them through. That’s the worst you can do. What’s better is to cut spending and be mindful with your credit card because in times of uncertainty debt can only make your situation more difficult and more stressful.

Side hustles

You may want to also be creative and find ways to start generating a bit of additional income. Side hustles can support you when needed, no matter how small. They can also allow you to maintain your previous lifecycle especially in terms of fun or investments that you may not be able to afford when in recession.

How do you prepare for a recession?