How to recession-proof your finances

It seems that everywhere you look at the moment, there’s someone warning of economic doom and gloom just around the corner. 

The reality is, no one knows when the next downturn will be, but markets are cyclical so it’s important to make sure you are prepared.

Here are a few things you can do to help protect your financial life, no matter what the financial climate.

Pay down debt

The Reserve Bank is slashing interest rates in an attempt to get us spending and stimulating the economy. But while splashing out might be good news for the country, interest rates on term deposits have also been reduced – putting pressure on savers. If you’re worried about a downturn and what it might do to your bank account, now is a good time to pay down debt as fast as you can. Low interest rates provide a great opportunity to make a dent in what you owe, so you can kick your savings into high gear sooner. If you have any consumer debt (i.e. hire purchase and credit cards), channel all your available money into getting rid of that first. Then move on to your mortgage. Talking with a mortgage adviser can help you make sure that you are on the right structure and rate for your situation.

Amass an emergency fund

If you don’t have one already, set up a savings account and start putting aside money every time you’re paid. Try to save enough to cover three months’ worth of income – more if you can. A rainy-day fund is a good safety net to have in place, and not just in case of a market downturn. For example, your emergency fund could help you weather the storm and bounce back if you stopped earning an income or had unexpected expenses to meet. Plus, the all-important buffer it provides means you may not need to take on new debt just to stay afloat.

Identify unnecessary spending

It helps to know what spending you could cut from your budget, even if you don’t actually do it yet. If you know there is a bit that could be trimmed, it may give you an idea of how much money you could quickly shift to savings or debt repayment if things began to look a bit more threatening.

Spread your work risk

What would you do if you lost your job? For lots of people, it’s a scary concept. Think about ways to learn new skills or brush up on things you haven’t done for a while to make yourself extra valuable at work – or even more employable for other businesses. You might also consider jumping into the gig economy and adding some other income streams to your work portfolio. A side venture providing a bit of money coming in can be an insurance policy to call on if your main job or income strikes trouble.

Check your risk allocation

A downturn can provide some great investment opportunities, but you need to have your investments structured appropriately to make the most of them. Check your KiwiSaver account – if you’ve got a while until you’ll need the money, you may be in a good position to afford to take on some more risk. This is likely to deliver better returns over time because you can snap up investments while prices are low. But if you need the money soon (for example, to purchase your first home), perhaps a more conservative fund may be the right fit for you – so the balance is not as affected by market movements.

Get good financial advice

As qualified Financial Advisers we can help you work out where the potential weaknesses are in your current financial structure and how well-placed you are to ride out a rough patch. Get in touch today to talk about how you can pay off debt, save and invest to get ahead of whatever the economy is doing.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current development or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek advice from a financial adviser.

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