Preparing for an economic recession cannot be done overnight. You should always be prepared for a recession because nobody can tell for sure when one will come. Using some common sense and a few tips will help you prepare but keep in mind that the best times to prepare for an economic recession is when there is economic growth. You prepare for the recession when you are prosperous and enjoy your wealth when in dire times.
Step 1. Build an emergency fund
Everyone should have an emergency fund. This is a fundamental tip because when a recession hits, the emergency fund should provide you a buffer to cover your living expenses until you reach some financial stability. You may lose your job or main source of income. If you have an emergency fund that covers 6 months of living expenses, it will provide you some breathing room until you recover.
Step 2. Reduce your debt
If you have a lot of debt, a recession will only make things worse. Being unable to pay your monthly bills and losing your job may force you to file for bankruptcy. If you reduce your debt, your living expenses will drop and you should be able to survive a recession for a longer period. Try to pay off your smallest debts. Credit card debt should be the first thing that should be paid off. When an economic recession hits, you will have fewer things to worry about.
Step 3. Continue investing
An economic recession also leads to stock market drops. Do not panic and sell your stocks. They will recover over time. You can sell some of your stocks in case of an emergency to cover some unforeseen costs. What you should be doing is to keep on investing in stable and recession-proof companies. Fortunately, there are plenty of companies that have strong resilience when it comes to an economic recession.