Preparing for doomsday is not something most people think of doing. It would be best if you focused on shelter or food but also prepared for a recession. The nation’s overall economic output decreases during a recession. According to the Department of Statistics, since the peak of the Asian financial crisis in 1998, the Malaysian economy has fallen short.
However, there is some merit to preparing yourself financially for a recession. According to the Washington Post, inflation is at a 40-year high and rising. The stock market is volatile, and cryptocurrencies are crashing. Unsurprisingly, there is little we can do about that, but there are some moves that you can make to avoid the worst of it. So, how should we prepare for a recession?
Take a hard look at your finances and create a monthly budget
Recessions don’t last forever, but unhealthy finances might. It’s hard to change an old habit, especially a bad one. So don’t spend more than you earn. A Malaysia Economic Monitor study says millennials or Gen Y tend to make impulsive buying with easy access to credit cards and personal loans.
To prepare for a recession, you must understand how to manage your finances. That’s why you should know where your money has gone every month. Plan your monthly budget to make it last as long as possible in an emergency. Doing this while the economy is strong will help you cope with it if and when it crashes.
Once you’re used to creating a monthly budget, you’ll know if you’re overspending on not-so-emergency things or not. By having a set budget and following it, you can live within your means. After all, living frugally is not something you can master in one night.
Limit big-ticket expenses
Do you need that new car? Consider the rent, your housing loan, insurance, food, and education. Prioritize these essential expenses before deciding on spending money on the things you may not need, like trying out Gordon Ramsey’s new restaurant in Sunway or buying the new iPhone 14. You’re not missing much, and there are better places to eat at way more affordable prices.
Pay your credit card debt!
It should be a no-brainer to pay your credit card bills on time, but somehow they accumulate all the time. We understand; high-interest debt, like credit card debt, affects your CCRIS and CTOS scores. So please pay your debts off as fast as you can.
Being in a situation where financial responsibilities don’t bind you enables you to effectively plan your finances. As a result, you’re not skipped over for financial opportunities in the future due to bad credit.
Cushion your emergency fund
Though it could appear overwhelming, preparing an emergency fund can help develop a vital saving habit over time. Make regular deposits whenever you have some extra cash. Automate your contributions to prepare for a recession. It’s even better to put the procedure on autopilot.
Unfortunately, many households still don’t have an emergency fund. Especially considering that in Kuala Lumpur, roughly 27% of households earn less than the projected monthly living wage set by Bank Negara, which is 6,500 ringgit for a couple with two children, 4,500 ringgit for a childless couple, and 2,700 ringgit for an adult alone.
It’s suggested that you set aside 3-6 months of wages for an emergency fund so you can survive for a few months if you ever lose your source of income. Start small. Remember that every saving effort counts when you prepare for a recession.
Where is your emergency fund?
Teach yourself to see saving as insurance. Like insurance policies, you want to limit risks when the recession hits—so treat your savings strategy accordingly. Keep your emergency fund in a secure location with guaranteed returns, such as a decent bank savings account. If you don’t have the fund parked in a high-interest account, or a rolling-interest trade account, the dormant fund will serve you less.
Clean up your investment portfolio
How are your investments doing? Do you need to explore new options? Are your returns being squirrelled away safely? Is a percentage of it going to your savings? If you have all these answers, good. If you do not, then it’s time to brush up on that segment of your life to prepare for a recession. We have a guide that you can check out for more details.
It is easy to get scared and start panicking when something as unpredictable as a recession happens. To prepare for a downturn, you must understand that it’s inevitable. Fortunately, it’s not as bad as a global pandemic or the great recession. A recession is a sustained period of economic contraction. In other words, when the recession starts, the economy is contracting instead of growing.
Feeling worried and stressed about the possibility of a recession is natural. But you can prepare yourself for a downturn by implementing the six tips mentioned above to help take away some of the stress and worry. However, we should always take proactive steps to protect our finances whether or not there is a recession. This could serve well if you want to prepare for a downturn.