In the current age, it becomes vital for people to recession proof their life to take proactive measures to minimize the negative impact of economic downturns or recessions on personal finances. As Kavan Choksi says, there are many daily habits that an average person may implement to protect themselves from the sting of a recession. By following the appropriate practices, one can get through recessions without facing significant financial damage.
Kavan Choksi provides a general overview of managing risks associated with recession
Building a financial cushion is instrumental in helping people weather uncertainties like recessions, and hence they should focus on creating an emergency fund. If one has significant cash in a high-interest, Federal Deposit Insurance Corp. (FDIC)-insured account, their money would retain its full value in times of market turmoil. This money would also be pretty liquid, providing people with an easy access to funds if loses their job or have to deal with a pay cut. People with adequate emergency funds would be less dependent on borrowing to cover unexpected costs or the loss of a job. Once a recession hits, credit availability tends to dry up fast. One can use their emergency fund to cover necessary expenses in such situations. However, it is also vital to stay on a tight budget to see to it that the emergency fund lasts long enough.
If one makes it a habit to live within their means every day during the good times, then they would be less likely to go into debt in case food or gas prices go up. Debt attracts more debt in case one cannot pay off the money they owe at once. For instance, one belongs to a two-income family; they should try their best to live off of only one spouse’s income. This tactic would help people to save a considerable amount of money in good times. On the other hand, they wouldn’t feel too burdened financially in case one spouse gets laid off, as the family would already be used to living on a single income.
As Kavan Choksi points out, while in recession the market can bring investments down, one would not lose anything unless they decide to sell. The market is usually cynical during a recession, and one would have many opportunities to sell high in the long term. On the other hand, buying stocks when the market is down can prove to be a good idea down the line. That being said, as one gets closer to retirement age, people must make sure that they have enough money in liquid, low-risk investments to retire on time and provide the stock portion of their portfolio enough time to recover.
If one has extra cash available and wants to adjust their asset allocation when the market is down, they shall also be able to profit from infusing money into temporarily low-priced stocks with long-term value. One should try to buy low so that they can sell stocks high later or choose to hold on to them for the long run.