After several years of bull markets, and economic declaration in some major economies, some economists fear that a global recession may be looming. Recessions are expected from time to time, but that does not provide much solace for those that fear taking investment losses or even losing their jobs. For younger adults, the great recession left a strong impression of the effects of an economic downturn. How can these individuals better prepare themselves for the next global recession?
When It Comes to Your Retirement, Avoid Rash Investment Decisions
With strong financial markets in recent years, it may be tempting to invest your retirement savings in the hottest stocks and most recent IPOs. However, before you begin investing on your own, it is important to have a thorough understanding of financial analysis and valuation techniques. These tools will allow you to take a conservative approach to selecting stocks with the best value, which can help you compound your wealth over the long-run with relatively lower risk. This method may also help you conserve some level of cash, which you can deploy if there ever is a market downturn, an investment technique referred to as “conserving dry powder” that is also employed by Warren Buffett.
Build a Rainy Day Fund
Financial upheaval takes many forms. Of course, it is possible that the next recession causes younger workers to lose their jobs or face lower wages. However, a number of unexpected events could occur that require them to tap into their savings, such as a medical emergency. Regardless of the cause, it is important to build up a financial safety net in order to sustain a reasonable quality of life in the case of any such event. For instance, a good measure of financial stability is to have savings that matches about 2 to 4 months of one’s necessary expenses. These include rent, food, student loan payments, credit card bills and utilities. For those that do not have this level of savings built up, it is important to take steps to set aside money each month in order to build this financial buffer.
Maintain a Healthy Credit Rating
One simple way to maintain good financial standing regardless of outside forces is to maintain a good credit rating. Simple ways to do this include repaying all bills and loan payments in a timely fashion and avoiding defaulting on loans. For example, it is easy to set up automatic credit card payments to ensure meeting the minimum monthly payment, if not the entire monthly balance. Additionally, it is important to only apply for loans that one can reasonably expect to repay within the given tenure. In practice, this may require setting realistic expectations for affordable home or vehicle purchases for example. To ensure that your preferred loan is affordable, refer to our home and car loan tools to estimate the required monthly payments.
Manage Personal Debts
In times of financial security, it is also wise to manage personal debts in order to minimise the costs in the case of unforeseen events. For example, by effectively managing your loans, you’ll have one less financial burden to address in the case of a job loss. This likely means different things to different people. For those with significant credit card or personal loan debt, it is wise to consider a balance transfer loan as a way to quickly repay your debts. These loans offer interest-free periods of up to 18 months, which provides time to pay down debt without incurring additional interest. For individuals expecting to repay their debt over a longer-period of time, debt consolidation plans are a good fit. These loans offer lower interest rates than other types of debt (e.g. credit cards and personal loans) allowing borrowers to manage their debt while minimising additional interest accrual.
Pick Up In-Demand Skills
In addition to optimising your personal finances, it is possible to prepare yourself for a future recession by adding some employable skills to your resume. For example, enrolling in part-time programming course could allow you to pick up valuable skills at a fraction of the cost of enrolling in a university degree.
Plan Ahead for Financial Uncertainty
We do not want to cause a hysteria by suggesting that the next recession is around the corner. Rather, we hope to help individuals put themselves in great place financially so that they will be better prepared during the next economic downturn. Hopefully the tips in this article help identify find ways to strengthen their financial position and give them peace of mind.
The article 5 Ways Millennials Can Prepare for a Recession originally appeared on ValueChampion.
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