5 Things You Shouldn't Do During a Recession

5 Things You Shouldn't Do During a Recession

In a downturn or a full-blown recession, it's best to curb spending and not take excessive risks that could endanger your finances. Financial goals. What happens to the economy during a recession can have a negative impact on your personal finances and wealth. However, you can increase your chances of surviving the financial crisis by preparing to mitigate risk and taking a few simple steps. There are some financial risks that everyone should avoid during a recession.  

Key points to remember

-          As the economy slows, financial risks, including defaults, bankruptcy, and the risk of bankruptcy increase.

-          Avoid the increases of and reduce the economic exposure if possible.

-          For example, you may want to avoid becoming a co-signer on variable rate mortgages or incurring new debt, which can increase financial risk during a recession.

-          For employees, you'll want to do everything possible to protect your work, such as doing the best job or increasing your productivity.

-          Entrepreneurs may have to defer spending on capital improvement and incur new debt until the recovery begins.

1. Becoming a guarantor

Joint and several loan guarantees are extremely dangerous even in times of economic crisis. If the borrower does not make the scheduled payments, the borrower may be responsible for making those payments. In times of recession, the risk associated with enrollment is greater, not to mention the greater risk that borrowers will lose their jobs.

That said, you may need to plan for your family and close friends no matter what happens in the economy. In these cases, it is worth saving the money as a pillow. Alternatively, instead of signing the contract, you might prefer early assistance or other assistance rather than being stuck by your current loan agreement.

2. Get an Adjusted Rate Mortgage

When you buy a home, you can choose to get an Adjusted Rate Mortgage (ARM). In some cases, the decision makes sense (as long as interest rates are low, monthly payments can be kept low). Interest rates often fall at the onset of a recession and then rise again when the economy recovers. This means that the percentage of adjustable loans issued during a recession will almost certainly increase.

Important: Interest rates often drop at the onset of a recession, but credit requirements are often strict and it is difficult for some borrowers to qualify for higher interest rates and loans.

But consider the worst case scenario. When the recession begins to subside, you lose your job and interest rates go up. Monthly payments can add up, making it difficult to keep track of payments. Late or missed payments can negatively affect your credit score and make future loans more difficult.

On the other hand, assuming you have decent credit, a recession might be a good time to set a lower fixed rate for mortgage refinancing if you qualify. However, be careful not to incur new debt until there are signs of economic recovery.

3. Taking on new debt

Taking on debt such as car loans, mortgages, student loans, etc. However, when the economy deteriorates, the risks, including the risk of layoffs, increase. In this case, you may need to find a job with a lower salary than your previous salary, which can affect your ability to pay the debt.

In summary, if you are considering adding debt to your financial equation, know that if for some reason you are fired or your income is reduced, your financial situation can become even more complicated. Getting into debt again during a recession is dangerous and should be approached with caution. In the worst case, it can even contribute to failure. If possible, pay cash or wait for a new purchase.

4. Finding a job to raise money

It is important to understand that even large companies can be under financial pressure during a recession and must reduce costs by all means possible. This could mean lower operating costs, lower dividends, or lower jobs.

Employees must do everything possible to make sure their employers have a positive opinion of them, as jobs become very vulnerable during a recession. Going to work early, staying up late, and always working at the top does not guarantee that your work is safe, but doing these things increases your chances of staying in your salary. From an employer's perspective, reducing marginal work makes more sense than reducing the time and wages of the most productive employees. Make sure you are not a marginal worker.

5. Investing at Risk 

This tip applies to entrepreneurs. You always have to think ahead and invest in growing your business, but the recession may not be the best time to make dangerous bets. The onset of the recession is not the time to unplug. And when the economy began to show signs of a sustainable recovery, it was time to start thinking big when the cost of capital and labor costs of new hires were low.

For example, it is interesting to take out a new loan to add physical floor space or increase inventory. Mainly because interest rates are likely to be low during a recession. However, if business slows down, another side effect of the recession, you may not have enough money to pay interest and principal on time at the end of the month. Wait for interest rates to start going up and for key economic indicators in the market or industry to rise. Thus, keep in mind about the 5 things you shouldn't do during a recession. 

 

References:

Article from www.investopedia.com

Photos from www.pexels.com