How To Become Recession Proof

 by Tavie Hynes-Laitt

COVID-19 has halted the nation. The government has borrowed money and set up the furlough scheme to keep the economy afloat. However when are the economic impacts going to come to light? Unfortunately a recession is almost inevitable at this point. So, what can you do to protect yourself, your business and your money… A recession, in economic terms, is a period of negative economic growth for more than two consecutive quarters. Put in simpler terms, a recession is where there is a significant reduction in economic activity. Ie making, providing, purchasing or selling goods and services. Unemployment increases, there is less investment, and the confidence of the nation shrinks. An infamous example is, the great recession of 2008-2013. Although for most a recession is a low point in their lives, for some optimists, it's a great way to find opportunities. For example, the technology industries and financial services such as accountants may not be affected by the recession at all. Here is your 5 step guide to become recession proof, whether you're a business owner or employee, investor or minimum wage earner this applies to you. 

STEP 1: Make Yourself an Emergency Fund

(image by Diane Helentjaris)

Recessions are full of financial hardships and unexpected turns having savings to dig into just in case of emergency is a good idea! This fund will be your safety net as recessions usually hit harder than expected. Don’t act too late as you won’t be able to save as much when the recession does finally hit. Having an emergency fund is always a good idea even when you don’t have financial pressure, what if your car broke down or phone smashed? An emergency fund takes the stress away as you won’t have to worry about trying to find the money if that’s the case. 

STEP 2: Diversification

Don’t put all your lemons in one basket. Try to diversify your streams of income, this will enable you to have more secure earnings and a fall back mechanism, if the firm you work for goes bankrupt or one of these streams dries up. If you can, also diversify your investments. Having investments over a broad range of sectors of businesses also gives you security. If one goes down you still have the others to hold onto. Don’t be put off buying stocks and shares as in a recession some will become extremely cheap which is a great opportunity for long run profits. 

STEP 3: Cut Your Spending

Try to minimise your spending in order to either save more and increase your emergency savings. Cutting back on seemingly small things like groceries, clothes and the essentials can save you a surprising amount of money in the long run. Budgeting more on leisure activities as well as meals out or takeaways for example is a good way to minimise your spending further. Using coupons and discounts as well as tracking your spending can mean the difference between hundreds of pounds at the end of the year. 

STEP 4: Pay Off All Debt

When covering living expenses gets harder, you do not want to have the financial burden of paying off debt. Try not to add to your debt or stall paying it off, be realistic about your household income and how much you need to save to pay off those unwanted debts. The last thing you want to do is to borrow money, if your means of income drop, you will have no way to pay back the money you owe. 

STEP 5: Don’t Panic!

Panicking and worrying won’t solve anything. Take action now to ensure there are no surprises later on. On the other hand rash actions cause bad financial decisions, make sure you are careful with your finances and use these steps so that the recession flies by!