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Preparing for the Next Downturn

If there’s one thing we learned from this recession, it’s that economies tend to be cyclical. Stock markets crash and rebound, unemployment rates go up and down, and real estate prices can decrease just as quickly as they increased during the boom years. Unfortunately, there’s very little we can do about it, and an economic downturn is likely to happen again.

With an ounce of prevention, though, there are some things we can all do to put ourselves in a better position the next time around. After all, sudden job losses might not have been so crushing had we all had enough money in savings to carry us through the downturn. And spiking credit card rates might not be quite as big of a deal right now if we hadn’t been carrying such a large debt load prior to the recession’s beginning last fall. If only.

No matter what mistakes we made this time around, it’s never too early to start planning for the next economic crunch. Consider this your emergency survival guide to a solid financial future, no matter what’s happening on Wall Street.

Build up an emergency fund. Having extra cash on hand in the event of an emergency is critical to preventing disaster if an unexpected job loss or other unplanned event should occur. Unfortunately, roughly one-third of Americans didn’t have any form of emergency savings on hand before last year’s economic collapse. Stay ahead of the game by setting aside at least three months worth of expenses, if not more, in case the worst should occur.

Figure out a backup plan. Whether it’s tapping into a savings account or taking on additional freelance jobs, it’s worthwhile to spend time putting together a plan for what you’ll do in the future should your employer resort to layoffs or furloughs as a way to keep the company afloat in the event of another economic downturn. By making the tough decisions now, you’ll have plenty of time to research and find the best savings plans and backup options without the stress of a looming recession.

Pay off your credit cards. During the height of the recession earlier this year, the general consensus was to pay only the minimums on credit cards and focus on building up your emergency savings before paying down the rest. Now is the time to pay down your debt altogether and start working toward bringing your balance to $0. Not only will you save money on monthly interest and late payment charges, but you’ll be in a much better financial situation for if the bottom falls out of the economy again in the future.

Move into a home you can afford. If you’ve been waiting to put your house on the market until the real estate market rebounds, then now might be the time to start moving in that direction. The market may never get back to where it was during the height of the boom, but recent tax credits for first-time buyers have helped boost demand in recent months. Whether you end up losing money on your home or not, you’ll be in a much safer financial situation the next time around by living in a place you can actually afford.

Learn new skills. Maybe you hung onto your job this time around, but if you’re one of the millions of people working in a dying profession, it may be worthwhile to take classes and pick up some new vocational skills in your free time. By taking a stab at a new trade during an economic upturn, you’re more likely to have a favorable chance of getting hired or finding clients than you would if you waited until the next recession to begin your new business venture.

Tags: budgets, downturnaround, jobs, real estate, recession, saving money