Stay Informed: How to Prepare for a Recession
Use of the dreaded ‘R-word’ seems to be an increasingly frequent occurrence. Recession is a hot topic around the globe and Australians are no stranger to the conversations around the threat of an economic downturn.
Plenty of indications suggest we could be headed straight for a recession. A string of interest rate rises has hit many Australians where it really hurts—right in the hip pocket—even if the Reserve Bank of Australia (RBA) has taken the steps to try and curb runaway inflation.
Debate continues between economists, executives, journalists, and everyday folks across the nation. Will we experience a recession in 2023? It’s a simple question that’s difficult to answer. While we can all speculate, the uneasy feelings are warranted based on long-term economic history. There’s no denying downturns can create a lasting financial impact.
Aussies have fared well in managing to avoid a recession for more than 28 years, including through the Global Financial Crisis of 2007-2008. Now that another major economic downturn looms, what should you do to prepare to weather the storm?
Read on for some handy tips on how to prepare for a recession—and check out some equally timely advice tailored to business owners as well.
What is a Recession?
It’s a reasonable question. In other words: how do we define what a recession actually is? Commonly it’s considered two consecutive quarters or more of negative growth in real gross domestic product (GDP). This is also referred to as a ‘technical recession’.
However, the RBA feels a little differently. They believe this definition has “a number of shortcomings”. One alternative suggests a recession is “a sustained period of weak or negative growth in real GDP (output) that is accompanied by a significant rise in the unemployment rate”.
Whatever the specifics, let’s dive into some handy hints for how you can prepare for an economic downturn.
Know Exactly Where Your Money Goes
Get a grip on your spending habits and know exactly where your money flows. Small purchases like that daily coffee, regularly dining out, or all those streaming subscriptions can all add up fast. While there’s no need to panic, analysing your spending habits at least gives you someclarity and allows you to tighten spending as required.
Shop Around for Savings
The polar opposite to the point above, now is very much the right time to shop—or at least to shop around. Find yourself the best possible deal on everything, from insurance to internet and even your mortgage. Competition is rife, so don’t be afraid to ask for a better deal. Just remember to do your homework first.
Consolidate Your Debts
Debts of any kind can undoubtedly weigh you down. Do you have lingering credit card debt? Consider consolidating it into a low-interest personal loan. Removing or reducing debt is one of the first steps required towards starting to build your savings.
Take Note of Fuel Prices
Any advice on how to prepare for a recession should mention fuel costs. It’s an essential purchase and unfortunately a costly one. But there are ways to minimise the financial impact of filling up the tank—even if reducing your mileage is not an option.
The most obvious tip is a well-worn one—keep a close eye on fuel prices and pounce when they’re low. There are several free apps that monitor fuel prices and indicate when they’re worth seizing and exactly where to head to get the best petrol prices.
Build a Buffer
Rainy days tend to arrive when you least expect them, so having a rainy-day fund is a sensible decision. A simple recommendation is to set yourself up with a buffer of enough cash to last for at least six months. This means covering living expenses such as mortgage payments or rent, insurance and utility bills, food and personal expenses, and any loan repayments you may have.
Need help getting started? Figure out your magic number, start saving slowly, and track your progress. Creating a buffer now will help alleviate financial (and emotional) stresses later, should the worst possible scenario arise.
Increase Your Professional Worth
As always, it’s a great time to make sure your employment value is where it needs to be. Upskill where possible, and have a look for the right professional development opportunities that will help you increase your value in the jobs marketplace.
There are many free learning platforms available online, so don’t be afraid to dive in and learn how you can stand out from the crowd.
Diversify Your Income
Last but not least, consider a ‘side hustle’ to bring in some extra cash. Some of the most successful businesses have been created from passion projects. Even if your aim isn’t to build a global empire, it’s still a chance to provide extra funds and peace of mind.
We’ll soon find out whether a recession is about to come knocking on the door. But as the Girl Guides and Boy Scouts like to say, always be prepared. Make a plan to prepare for the worst and hope for the best.
And if you’re still looking for some sound financial advice, simply drop me a line at [email protected] and let’s chat. When you speak to the team at PrimeAdvisory, you get the best in financial, accounting, and taxation advice. After all, we firmly believe that possible starts here.