Fears of an imminent economic downturn are running high. According to one survey, 81% of US adults are worried about a recession hitting this year.
A couple trends feeding into these fears include inflation rates hitting a 40-year high and the uncertainty surrounding Russia’s recent invasion of Ukraine.
But whether you think we’re headed for another depression or not, it’s important to be prepared. So here are 5 financial tips and 5 practical tips for preparing for an economic collapse:
Tighten up Your Budget
First, tighten up your budget. Eliminate any unnecessary spending that you might regret later.
Start by getting rid of subscriptions you don’t need. Then limit how much you eat out and lower your insurance and utility bills where you can. Finally, beware of lifestyle creep, aka spending more as you make more money.
Grow Your Emergency Fund
If you don’t already have an emergency fund, start one. Get a liquid savings account and start building up a savings of 3 to 6 months’ worth of income. That way, if you ever lose your job, you’ll have some cushion to protect you.
From there, you should put at least 20% of your income toward savings. And keep some emergency cash on hand, just in case you can’t withdraw from the bank.
Get Rid of Debt
The average American is $90,460 in debt. But debt weakens your financial position considerably, especially in an economic crisis.
So work on eliminating your debt while the economy is still good. Tackle high-interest debt like credit cards first and avoid future debt as much as possible. If you can’t handle your finances now, you’ll be in trouble when a recession hits.
Keep Investing in Your Retirement
Keep contributing to your retirement IRA or 401K account. It can be tempting to pull out of your investments when it looks like the market will crash, but don’t do it.
As long as you have a long-term investing horizon, you can ride out the storm, and you’ll be glad you did when the economy recovers.
Set up automatic withdrawals to put your investing on autopilot. That way, you don’t have to think about it.
Diversify Your Income
When it comes to making money, try to diversify your income streams. Relying on only once source of income puts you at more risk.
Think about it. If you lose your job, there goes all your income. So start a side hustle. Look for ways to create passive income streams. For example, you could invest in rental property and hire a property manager to take care of the day-to-day tasks.
There are a million different ways to make money. The key is to make money in a few different ways, so you’re not dependent on just one.
Learn Some Handyman Skills
If the economy collapses, you’ll want to have some practical skills to survive. This means handyman skills like construction, woodworking, and automotive skills. When it comes down to it, skills like computer programming might not be very useful.
Store Food and Water
Implement food storage. If grocery stores go out of stock, as they did during COVID-19 for a time, you’ll want to have food and water on hand to survive for a while.
Similarly, stockpile medicines. Healthcare may be hard to get during an economic collapse, but you’ll still need your medications. So ask your doctor if you can get your prescription filled for a few months out.
Land is not only a valuable asset but it’s a physical place where you can live independently of others. So buy land. You don’t want to rely on a landlord, who might kick you out or hike your rent when times get tough.
Grow a Garden
Lastly, start a garden. It’s a great way to have organic food, save money, and become less dependent on the economy. If you can’t get to the grocery store, you’ll still have a way to grow vegetables, fruits, and even grains to sustain you.
Preparing for an economic downturn isn’t easy. It takes a lot of time and effort. But if you start small and implement one habit at a time, you’ll build a strong foundation for when the economy tanks. Prepare now and you’ll be better off for it.
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