Believe it or not, the economy goes through the same economic cycles over and over again.
The economy will go into a recession or a depression and bottom out.
Next, the economy will start to grow, even if we don’t realize the recession is over.
Eventually, growth will pick up and we’ll notice we’re in a recovery.
One day we’ll hit the top, which may be a new economic high. The problem is, we don’t know it is the top at the time and a recession will follow it. This is a pattern that has been going on for long time.
However, people are always shocked when the next recession hits. Instead of being shocked, you can prepare for the next recession and position yourself to take advantage when others are struggling.
How To Prepare For The Next Economic Downturn
Preparing for an economic downturn is easier than you’d think. Why? Because the steps you follow to prepare for an economic downturn are the same basic financial rules you should be following anyway!
Have An Emergency Fund
An emergency fund is an essential piece to preparing for the next economic downturn. Your emergency fund will allow you to be able to sleep at night when horrible economic events are occurring all around you.
With 3 to 12 months of expenses sitting in cash in the bank, you know you’ll be able to withstand almost any financial challenge you may face.
Whether you get laid off or have a medical emergency, your emergency fund should be able to hold you over until you can find a new way out of your situation, even in a recession.
With an emergency fund, you can wait for a better job offer to come along after a lay off or you could take a lower paying job until the economy recovers and cover the pay difference with your emergency fund.
Have Multiple Streams Of Income
In order to decrease your reliance on your income from your job, you can diversify your income by having multiple income streams.
Whether you have a significant amount of income from dividends or a side gig that makes a few hundred a month on the side, having multiple income streams will make you feel a little more at ease during a recession.
Even if one income stream dries up, combined with your emergency fund, your other income streams could keep your head above water while others start drowning in the recession.
If the economy takes a major down turn, you may even be able to turn a side income stream into your new full time income.
Make Large Purchases When They’re On Sale
While the first two tips help you position yourself to survive an economic downturn, this tip helps you take advantage of an economic downturn. Very few people take the opportunity to enhance their financial position in an economic downturn. Don’t be one of them.
Rather than sitting on the sidelines waiting for things to get better, you should take advantage of all of the discounts that arise in an economic downturn.
Take advantage of their poor financial position and get a huge discount on your next new car, home or investment.
It will be impossible to tell if you’re buying at the beginning of the downturn or the end of the recession.
However, if you’re making a purchase you would have made anyway, you’re probably going to get a better deal than you would have during the prosperous times.
The more luxurious these items are, the more likely they’ll be on sale. Vacation homes can quickly drop in value as they’re a luxury people don’t need in their day to day lives.
However, you will be in great financial shape and can likely afford to take advantage because you will have an emergency fund and multiple streams of income.
Economic downturns, whether they’re a recessions or a depression, can easily destroy your financial security if you’re not prepared. Don’t fall victim to an economic downturn.
You know they’re coming, so prepare now while the economy is growing. Secure your future with an emergency fund, multiple streams of income and be ready to take advantage when others are desperate financially.
Are you prepared for the next economic downturn? Do you have an emergency fund and multiple streams of income? Do you look forward to getting a house, car or investments on sale during the next recession? I’d love to hear your thoughts!