Do you consider that your personal finances are robust enough to overcome an economic crisis?A.Mworld?
A recent study by the World Bank exposes that we could experience a recession in 2023, and that both developing economies and emerging markets could collapse.
And although you can’t put a stop to this, you can design an action plan so that the global economic ravages have the least possible impact on your finances.
Why is a new economic crisis looming?
in a recent Press releasethe world Bank It states that there is a greater risk of entering a global recession next year, and that “simultaneous interest rate hikes” cannot be left aside.
This year central banks around the world have simultaneously raised interest rates in a desperate attempt to curb inflation.
This phenomenon had not occurred in the last 50 years, and experts say that the pandemic crisis has had a lot to do with it.
Another piece of information that has set off alarm bells is that, even if interest rates are raised, it is possible that inflationary levels will not return to being the same as before the pandemic.
Labor market pressures have also affected the inflationary spiral; especially in the United States and in some Latin American countries.
The study presented by the World Bank suggests that if the pressures of unemployment are not alleviated, nor are the disruptions in the supply chains solved, the world core inflation rate could reach 5% in 2023.
That would be almost double the five-year average before the Covid-19 pandemic. Consequently, central banks could increase interest rates by another two percentage points.
Alarming statistics on the economic crisis
As if that were not enough, the world Gross Domestic Product could be reduced to 0.5% during the next year.
That would be equivalent to a contraction of 0.4% in per capita terms. Which would technically represent a global recession.
In addition, the economies of the euro zone, China and the United States (the most influential in the world), have suffered a very abrupt slowdown.
Experts say that the global economy is experiencing a very dramatic decline (the most pronounced since 1970).
Faced with the possibility of entering into an economic crisismica mundial, in just a couple of months, sitting idly by is not an option.
In this guide we will explain the ten steps you must take to prepare yourself in advance and prevent this situation from pulverizing your finances.
Steps to overcome a global economic crisis
Would you like to know how to deal with a crisis?sis econglobal omics in a more effective and planned way?
These are the steps to follow to contain the devastating effects that a recession can have on your pocket, or on your personal finance:
1. Reduce or eliminate debts
Faced with an economic crisisomglobal ica it is foreseeable that financial institutions will stop granting credits. (This is done for protection or containment).
Basically, they rely on this measure to identify customers who have a greater debt capacity, and then differentiate them from those who are not in the same position.
In scenarios of financial uncertainty, the wisest thing is to alleviate your debts to the maximum (both personal and business).
Wealth advisors insist that people should settle your debts and not take on new loans if a crisis looms ekonglobal omics.
Keep in mind that the US Federal Reserve has raised interest rates by 75 basis points during 2022.
If they continue to increase in the following months, that will end up affecting your future debts.
That is why it is vital that you pay off the ones you currently have and that you do not contract new debts.
2. Get up to date with your credit cards
This recommendation is intrinsically related to the previous one. If you are heavily indebted with your credit cards, design a plan to catch up as soon as possible.
If interest rates continue to rise, in the coming months, you could have many problems when it comes to managing those debts.
Keep in mind that lower debt balances are equal to lower interest payments. And this can make a world of difference in the most dramatic financial periods.
3. Create a personal budget
The creation of a personal budget It is a critical success factor if you want to face an economic crisis.ca mundial without so much suffering.
It is necessary that you identify your sources of income and expenses to analyze the current status of your finances.
You must know, clearly, what enters and leaves your accounts each month. That will allow you to put yourself before future contingencies.
This step is also key to identifying the ant expenses that they could be impoverishing you without realizing it, and that ultimately you cannot keep in times of crisis.
Set a spending limit and stick to it month after month. Also do not forget that the infallible formula to lose control of your finances is to spend more money than you produce.
You can use some applications or simple methods to control your finances on a monthly basis and avoid improvisations that could cost you a lot of money.
4. Do not neglect savings
If an eco crisis loomsnameworld ica it is crucial that you do not stop save money. Financial planning specialists suggest saving between 10% and 20% of your monthly income.
But we must not forget that low wages and the increase in the cost of living impair the ability to save.
Consequently, the wisest thing is to determine a savings percentage that fits your current situation.
In the end, it’s better to save a small amount of money each month than never save a penny.
If you haven’t developed saving habit this is a great time to start working on it.
Lean on some basic tricks, such as automating some transfers between accounts, or avoiding unnecessary expenses, to move in the right direction.
5. Have an emergency fund
With an emergency fund you could face fortuitous or unforeseen situations in the future, without compromising your savings or your liquidity.
If an economic crisis is foreseenA.Mundial you should not skip this step, or you could be in serious trouble.
In theory, this emergency financial cushion should cover your basic expenses for three to six months.
The best time to start working on your financial leverage is right now. Do not wait for the crisis to start to take action, or your personal finances could be seriously affected.
6. Reduce expenses
During the creation of your budget you will detect frequent expenses and you will also become aware of those that are not essential.
To correctly manage your money; identify the categories, goods, products or services in which you are spending more money, and then apply the pertinent corrective measures.
Cutting expenses is not the same as sacrificing your lifestyle. It is about improving your relationship with money and doing without all those expenses that are truly superfluous.
Another recommendation that can help you is to avoid large expenses. Do not be seduced by financing, or installment payments, because they could play against you in times of recession.
7. Be careful with investments in real estate
Waiting for the recession to invest in real estate could be counterproductive. Why? According to Business Insiderprices could stagnate, or fall, but interest rates could still soar.
Then, When is the best time to buy a home? It’s simple: when you can pay your mortgage payments without jeopardizing your personal finances.
If the crisis finds you in a delicate financial situation, think twice before making this decision. Especially since in the last year mortgage rates have risen more than 2%.
8. Do not neglect your investments
If you have not energized your investment portfoliotry to change that situation strategically.
Some experts recommend investing in stocks that pay dividends at a slow growth rate, through a mutual or index fund.
Others believe that investments in high-quality bonds could be highly beneficial, as recessions are often kind to such debt securities.
If you do not have much experience as an investor, be sure to contact a stockbroker so that you do not risk your money or your financial future.
9. Identify your risk tolerance
This advice goes hand in hand with the previous step. Investing in times of recession can be a great idea (as long as you know your risk tolerance).
This will allow you to know the maximum risk you would be willing to take, or bear, in the event that market volatility is lurking.
Be clear about what it means to invest, and above all, remember that every investment carries a risk.
Then ask yourself what it means to lose money. If you find that you have a high risk tolerance, then rule out savings accounts or certificates of deposit.
Although they will generate interest, unfortunately in times of recession inflation will quickly dilute them.
therefore you could buy actions or make other investments that offer you a higher return in the face of inflation.
10. Get “recession-proof” jobs
Jobs linked to the public, educational or health sectors tend to be the most resistant to recessions.
Try to get a job that is not expendable in a crisis situation, because you would risk losing it in the blink of an eye.
Likewise, design a plan that allows you to get a new job quickly, in case you are fired from your current position.
The less time you are unemployed, the better your chances of protecting your savings and finances in the long term.
Control your finances in times of recession
At the beginning we told you that you do not have the power to avoid an economic crisis.eitherworld economy. But even so, there are mechanisms and tools so that its effects do not destroy your finances.
If you make sure you follow the ten steps that we just shared with you, you could live through the recession without so much aggression.
Remember that the objective is to face the crisis with the least possible burdens and that you can achieve that goal with financial intelligence and great prudence.
Continue reading: 10 Ways to save money in times of inflation