When a recession arises, there are essential steps to take to avoid mistakes and missteps that might lead to a loss. Recessions can provide opportunities if you know where to look. It is crucial to see how economic downturns can be the most significant opportunity to grow your wealth and business.
Below, Jason Kulpa, net worth expert and experienced serial entrepreneur, outlines ways to help grow your wealth and business to help protect yourself during the next recession.
Increase your savings
Most researchers and finance professionals would suggest keeping anywhere from three to six months’ worth of expenses in your emergency savings fund. Having a cushion of funds available can help you continue to cover your cost of living while searching for a new job without incurring additional debt.
Pay off debt
Taking steps towards paying down debt can help create some breathing room in your budget during downtimes. One of the first concerns during a recession is job security. If you are concerned at all that your job might be on the line, paying off debt can help give you relief that your nest egg can go towards essentials in hard times. Start by focusing on the highest-interest debt and work your way down. Credit cards should be the first focus and then auto loans or mortgages. Student debt typically has preferential treatment in economic hardships and therefore may have alternative solutions.
Don’t live outside your means
Most studies show that no more than 30 percent of your income should go towards discretionary spending. Creating a quick budget can help you break down exactly what expenses your income is going toward. While it may be nice to enjoy that Caribbean vacation or frequent happy hours with friends, make sure that you are keeping those luxuries within your means of income.
Look at ways to cut costs
There are always ways to trim the budget when necessary. Remember that not all cuts have to be a permanent change. When looking at ways to save up, look at your discretionary funds. After identifying essential costs of living, consider cutting back on eating out or canceling cable temporarily. A little cut here or there can add up quickly.
Keep a long-term outlook
When a recession hits, investments can be a scary discussion for many individuals. Markets can dip as much as 30 to 40 percent in a downtown, which can make those who have worked hard for years distraught about the thought of losing their retirement funds. While it may make you sick to your stomach in the short-term, recessions don’t last forever and investments will eventually return to their original valuation, or even higher. Many make the mistake of selling everything during these times and lose out on returns when markets rebound.
Understand your risk tolerance
Often in our younger years, we are comfortable with taking more risks. The younger you are, the longer time horizon you have to rebound from any risky actions. If you are nervous about your investments, it might be a good time to sit down with a financial advisor to understand your suitability and risk tolerance. If you are approaching retirement years, it may make sense to reallocate your investments to better suit your adversity to risk. This doesn’t mean pulling investments to cash entirely but rather making sure your funds are invested properly.
In the event of a downturn, it doesn’t hurt to make sure your skillset is up to date. Picking up an extra certificate or course can help broaden your horizons and make you marketable in challenging job markets.
About Jason Kulpa
Jason Kulpa, net worth expert and successful entrepreneur, is the Founder and former CEO of UE.co, San Diego’s Fastest Growing Business multi-year award winner, and a Certified Great Place to Work multi-year winner. Under Mr. Kulpa’s leadership, in 2018, his teams volunteered at over 24 events and worked side-by-side to improve the San Diego community. They hosted a gala dinner benefiting individuals with autism, cheered on Special Olympic athletes as they broke their records on the track, and brought school supplies and cold-weather gear to students impacted by homelessness.