When the economy takes a turn for the slower, the most optimal way to go about your finances is to watch your spending and refrain from taking unnecessary risks that could set back your financial goals.
With a recession right around the corner, many are at risk of having their finances impaired, and it’s exactly why it’s imperative that you take a few steps back and reassess your situation in order to prepare for the upcoming economic storm.
With just a few minor changes to your financial habits, you could stave off any potential risk to your economic wellbeing, and by avoiding these 3 risks during a recession, you’ll be doubling your chances of coming out on top.
Cosigning a loan
Cosigning a loan is one of the main things to stay away from even when the economy isn’t underperforming, as any payments the borrower doesn’t make fall on the cosigner to pay instead, which stacks up pretty fast during a recession.
In fact, the risks associated with cosigning a loan are nearly doubled during recession times, as both the borrower and the cosigner are at greater risk of losing their job or at the very least seeing a decline in their business-related income.
However, you may still find yourself in a situation where you’ll be forced to cosign in order to help a family member or a friend through a rough patch, and in situations like these it’s important to have some savings set aside to cushion any blow that may follow.
Much like cosigning someone else’s loan, taking out one of your own is just as risky, as accumulating additional debt is the last problem you need in times when you’re at risk of being unable to make your monthly payments.
When the economy slows down, risks increase, and this includes the risk of being fired or losing your other source of income, which might force you into taking a job or even two, that pay less than what you’re currently earning, biting into your ability to pay off any remaining debt.
Long story short, if you’re looking to add debt to your current financial situation, you must understand that significant complications may arise if your income declines or comes to a halt.
Making risky investments
Finally, although this mainly applies to business owners, don’t be too eager to make risky investments, because even though you should always be on the lookout for opportunities to grow your business, an economic slowdown is the least optimal time to make these bets.
This is especially true early on during a recession, as it’ll take time for market experts to assess the situation and create a projection for the future, meaning that you should wait for the economy to start showing signs of a recovery to unfold your financial plans.
Taking on additional inventory does sound nice though, especially as interest rates often sink below standard values during a recession, but you must remember that the economic storm may prevent you from making your interest payments on time, so make sure you have all your ducks in a row before making any risky decisions.