Today’s economy has rebounded solidly from the Great Recession of 2008-2009, although growth has returned at a slower pace than historical averages. That being said, the economy remains at risk for another downturn which could come sooner rather later. Many people suffered through this past recession due to the loss of a job, negative investment returns and too much debt. Like any disaster, if you prepare today it is highly likely your financial assets will be protected during the next recession. These steps will not only give you peace of mind but will put you on the road to building wealth.
- Save, Save, Save – TODAY!
This is the most important and fundamental action you can take. Make savings a priority no matter what obstacles and wants you currently. It can’t wait until tomorrow, no excuses. Build that emergency fund, fund savings and retirement accounts automatically and take advantage of investment opportunities that will build your wealth.
- Asset Diversification
Many saw dramatic declines in their stock portfolios and real estate investments during the last crisis. So where do you go? Think about it in terms of time frame, short-term vs. long-term. Stocks and real estate are typically for long term investments whereas cash, short term bonds and other liquid assets can be used for the short-term investment. Also, diversify your investment vehicle with individual stocks and bonds, ETF’s, mutual funds and even hard assets like real estate and precious metals.
- Income Sources
Think about your income sources. Do you only have one source, maybe two with your spouse? Saving properly will help get you through a short term job loss but if you can diversify your income stream you are able to use less of that savings in a time of crisis. I know, this is a tough one but if you are able to produce income either through investments, specialized contract work or even legitimate home based computer work it can help fill the void if ever needed.
- Reduce or Eliminate Debt
Have a plan, have a budget. Save and use cash for those items that you know you will be purchasing in the near future, whether they are a want or a need. Do not carry credit card debt, especially high interest rate cards. Live within your means and you will be just fine.
- Organize Your Records
Having a system to handle monthly budgeting, investments and debt servicing can greatly reduce stress in times of crisis. Also, organize all of your physical records, from insurance policies, legal documents and tax records. Store these in a home safe for easy access.
These are all simple steps but they take initiative and continuous discipline. The next recession is not if, its when. So start preparing today to reduce your risk of loss during economic crisis and at the same time build wealth and hopefully sleep better at night.