As coronavirus cases continue to soar in the United States and millions remain without jobs or income, economic analysts are certain that a depression is on the way. Not just any depression, though—some economists predict that the upcoming depression will be as bad or even worse than The Great Depression of the 30s. What that may look like in our modern era, though, is anyone’s guess.
Given our less-than-optimal circumstances, it’s important to prepare for the worst. At Sovereign CPA, we get how uncertainty at this time can be hard to handle, so we’ve come up with some tips to keep money in your pockets in the coming months.
Assess Your Finances
The very first thing you will want to do when preparing for a recession is to take an honest look at your finances. While a handful of us are incredibly focused on our finances, it’s safe to say that many of us are less than aware. Under normal circumstances, this normally wouldn’t be an issue, but every expense matters during a recession.
As you assess your finances, you can make a list of which expenses are essential and which are not. For example, paying your rent/mortgage would be essential, but paying for a Disney+ subscription would be considered non-essential. Once you complete your list, try to reduce your non-essential expenses as much as possible.
Try To Get Rid Of Debt
If you haven’t been affected by the pandemic and various issues associated with it, now is a great time to put a dent in your debt. Debt is, unfortunately, simply a fixture of American life. In fact, it’s estimated that the average American is saddled with nearly $40,000 in debt! That’s enough for a pretty nice car or a year’s tuition at Clemson University.
The best way to try to free up cash for debt is to do an honest analysis of your finances and assets; this is something our team can help you with. The easiest way to free up money is to spend less on more extracurricular activities. Expensive subscription services, fancy dining, unnecessary shopping on Amazon—you can cut down on all of that and redirect that money to your debt.
While getting your debt down is an important step you should take, you also want to save money.
Save Some Money
Besides paying down your debt, you’ll also want to take the money you’d normally spend on frivolous services/items and stash it away. In a recession or depression, it can be difficult to know how the downturn will affect you. Some professions are recession-resistant, while others may be more prone to problems. Determining your risk may require an honest look at how your profession is related to the economy at large.
So saving is great, but how much should you save? Well, that depends, but ideally, you want to save as much as is possible. In normal circumstances, it’s recommended that people have at least $1000-$2000 saved up for emergencies, so that would be a good benchmark if you aren’t already there.
A lack of savings is poised to be one of the biggest issues in the coming recession/depression. While some reports state that households have several thousand in assets and savings to fall back on, others state that many couldn’t afford a surprise $1000 bill. Regardless, one of the best ways to prepare yourself is to stuff your savings account with cash.
Diversify Your Portfolio
One of the biggest mistakes people make during an economic downturn is not having a diverse portfolio of assets. As the saying goes, you definitely don’t want to have all of your eggs in one basket. As a dedicated CPA group, we help clients diversify their portfolios, often for this very reason. Spreading out your assets is a great way to minimize the damage of a recession.
Do Your Own Research
It’s easy to let the endless headlines of economic downturns and financial strife guide your decisions, but you may want to take those reports with a grain of salt. In these times, it’s incredibly important that you conduct your own research about the economy and how it will affect you.
One way to accomplish this is to pay more attention to local stories, instead of national news. That way, you will have a better sense of how your own community is being affected. In addition, you could also look for news that is more specific to your profession. Every industry will be affected slightly differently, so looking for that information can better inform your financial decisions.
Hire A Trusted CPA
As you can tell, preparing for a recession or depression can be a lot of work. Luckily, there are experts ready to help you get your finances in order. At Sovereign CPA, we have several decades of experience helping people take control of their finances, and we’re ready to help for years to come. Contact us today to get started on securing your financial future!