Money Bite-Size Read:
- Many counties, including Australia, are currently in recession.
- It might seem scary, but it doesn’t have to be, particularly if you take action early.
- Here’s how to respond to a recession in just 15 minutes so that the money news of recession doesn’t disrupt your financial goals.
The Money Bites Take:
You are more likely to survive and thrive through a recession by taking early action to check in on your financial situation to ensure you reach your goals.
Many countries around the world are currently in recession.
Australia has joined them, with its first recession for 29 years due to the impact of bushfires and COVID. In addition, the lockdowns brought by COVID have caused in-person services like gyms and gyms to stop operating, contributing to this slowing down of the economy.
But what is a recession?.
It can be defined as what happens an economy has two consecutive quarters of negative growth. There are also other recession indicators, such as more people losing their jobs and falling retail sales, as people are spending less on non-essential shopping.
There’s evidence of recessions causing labour market scarring, such as young people taking lower starting salaries to find work. A recession impacts people differently, and that’s why it’s important to look at your financial situation now. In fact, you can start taking action in as little as 15 minutes.
Here’s how to respond to a recession in just 15 minutes:
1. Build an emergency fund
An emergency fund does what the name suggests; it’s a fund that provides you with money in an emergency. You need an emergency fund because life happens, and you can’t control everything that happens in an economy, including whether you experience a recession.
- 5 minute action: Identify $1,000 you can access in an emergency.
- 10 minute action: Open a separate savings account for a dedicated emergency fund that you are not tempted to access on a whim.
- 15 minute action: Work on building up an emergency fund so that you have around 3 months or more of income saved for emergencies.
2. Identify any debt you’re carrying
Debt is money you pull from your future to pay for past choices. This could be an asset that grows over time, like a mortgage on your home or a or a buy now pay later account, which means you’ll need to pay more for items later. Debt adds up due to compound interest, as it gets bigger over time, and you are obligated to pay it back to your creditor.
- 5 minute action: Know where your debt is and how much you currently owe
- 10 minute action: Determine what the interest rate is on every debt you hold
- 15 minute action: Work how you want to pay down your debt, such as using the debt snowball method to pay off the smallest debt first.
3. Know how much it costs to be you
Some people don’t like budgets. Those people are very lucky not to have to worry about where their money goes. However, luck runs out eventually, and you need to know how much it costs to be you. That includes learning how to budget so that you know what your income pays for each month.
- 5 minute action: Write down all the bills you pay each quarter, such as rent and power bills, and when these bills are typically paid.
- 10 minute action: Start monitoring what you spend money on via a budget app or by writing this down each day.
- 15 minute action: Work out where in your budget you can trim expenses to save money that you can then put towards your financial goals.
A recession will be a difficult time for many people.
However, it has been a regular occurrence throughout history, and it’s likely to happen again during your lifetime. Take the time now to assess your financial situation and work out how to respond to a recession so that it doesn’t disrupt your financial goals.