Paying down debts, building up emergency money and ‘doubling up’ on investments are three ways you can ‘recession-proof’ your finances, an expert has claimed.
Canna Campbell, from Sydney, warned against being anxious or fearful about economic recessions and said you should instead use these periods to your financial advantage.
‘There are five things you should be doing with your money management during a time like this,’ Canna said in a YouTube video on the subject.
The first thing Canna said you need to do is manage your debt responsibly, and pay it down as quickly as possible.
‘You need to understand who you owe money to and exactly how much,’ Canna said.
Once you’ve done this, it’s a good idea to have something like an Excel spreadsheet, which you check in with regularly to see how much you owe and when the next repayment is due.
‘At a minimum, you need a minimum repayment plan in place,’ she added.
If you can, you should maximise this repayment.
For example, if you owe $1,000 on a credit card and the minimum repayment is $30 per month, if your budget can afford it, then bump up your payment to $100 per month and you’ll potentially pay the debt off in 12 months.
‘Make sure you put on what you can afford, as you can’t get it back though,’ Canna added.
You need to have deadlines around your goals.
Once you have settled any existing debts, you should work on building up your emergency fund.
‘If you have emergency money, it’s so much more likely you won’t go back into debt,’ Canna said.
The expert recommends you build up your wealth by using the classic investment-building strategies: set up a regular savings plan and try and ‘beef it up’ as often as possible.
‘Whenever an extra lump sum comes to you, make sure you throw that money towards your savings,’ Canna said.
‘Saving is slow and boring, but there is a powerful lesson in it.
‘By regularly and slowly paying off debts and increasing your savings, you’re building up positive money mindsets and realising how quickly we spend money and how slowly we make it.’
Thirdly, Canna said if the coronavirus crisis has taught us anything, it’s that you can’t rely on the income from one single job.
‘It’s so important to have a skill that helps to bring in extra money when you need it,’ Canna said.
Whether it’s tutoring, house sitting or a business, the expert said you should build up passive income streams and start investing in other income sources:
‘That way, if you lose your job, it’s okay as you have rental income or dividend income coming in,’ Canna said.
Diversify your skillset and earning capability, and while it may not replace 100 per cent of your earnings, you’ll be instantly better off and it will help you get back on your feet.
While Canna said that markets around the world have dropped between 25 and 30 per cent, she said it is definitely not the time to move money around.
‘Whether it’s your super or your pension, this is not the time to go “I’m in a high growth investment portfolio, look how bad this recession is, I’m going to switch everything to conservative”,’ Canna said.
The reason why is if you do this, you would be ‘locking in’ or ‘crystallising’ your losses.
‘Either sit on your hands and do nothing, or if you’re in a financially stable situation, switch from a balanced portfolio to a high growth option – something we call doubling up in the financial world,’ she said.
‘Remember money is a long-term investment, at least 10 years, if not longer.’
For this reason, you shouldn’t spend every day looking at a screen and your account balances.
Instead, have faith in your investment decisions and focus on the long-term strategy of your game plan.
Finally, Canna said that just because we are in the midst of coronavirus, that doesn’t mean you put all your financial goals on hold.
‘This is not a time to go into hibernation and stop spending, saving and investing,’ she said.
Rather, you need to ‘strengthen your financial muscles’ and try to look for any blessings in disguise.
‘Set goals, check in on them on a regular basis and always look for opportunities,’ Canna said.