Saving: Cash is key in a recession
Protection of the standard of living as well as the portfolio
A study by MagnifyMoney shows that more than two-thirds of Americans (68 percent) do not feel financially equipped to weather the economic downturn. The data was collected from an online survey of 2,082 US consumers in early June. The survey revealed that women feel significantly less prepared than men (77 percent vs. 57 percent) and that baby boomers – i.e. people aged 57 or more – are much less afraid than younger generations.
Nearly 90 percent of those surveyed said they had already taken measures such as cutting spending or setting up a nest egg to prepare for a recession. But which measures are really useful?
Strategies for dealing with a recession
A CNBC post summarizes strategic tools by age. Certainly there are key differences between the US and European countries – particularly with regard to unemployment or health insurance and real estate financing – which are particularly evident in a recession. However, there is an overlap of basic strategic considerations for dealing with an economic downturn.
Regardless of age or economic situation, experts advise against investing any money on the market that will be needed in the next five years. The diversification of the investment portfolio is also good advice in every situation.
Development of a financing plan and further training
In the 1920s and 1930s, experts first recommended drawing up a financing plan for future investments and debts. The financing plan should serve to secure the financial future and contain the development of an emergency fund as well as a plan to pay off any debts through training/study and home financing.
Cash reserves are central to a recession, so it’s recommended that you put 10 percent of your income in a high-yield savings account to cover three to six months of living expenses. In order to build a financially secure future, the salary is key at this age, so it is advisable to continue your education in all areas in order to remain attractive to employers. “Soft skills” are just as much in demand as a supplement on the job market, as are “hard skills”, and networking on online platforms is also helpful.
Securing and reviewing the financing plan
At the age of 40 to 50, the focus is on securing what has already been achieved. In addition, the responsibility towards children and family is particularly high in this phase of life. The best years of earnings should therefore be devoted to adequate insurance coverage (property, life, liability) and retirement security. This can concern household, life or liability insurance as well as private pension schemes. In the phase of life shortly before retirement, it is important to subject the financial plan that has been drawn up to a test: Is the planned budget sufficient in the possibly changed economic situation?
Basic review of finances
In addition to the strategies mentioned above, which are tailored to the individual phases of life, the following applies in principle in view of rising prices for living expenses: reduce expenses and optimize income.
Numerous experts advise first and foremost to check regular expenses and, if necessary, to cancel superfluous subscription contracts, to reduce (or suspend) savings rates, to check insurance policies and to optimize contracts. In the case of mobile phone/Internet and electricity contracts, the savings potential when changing contracts is particularly large. One-off or recurring expenses also need to be examined.
On the income side, it is important to consider whether a part-time job could cushion the risk of short-time work or unemployment at an early stage. Furthermore, the application for subsidies can also be considered for employees. Because according to various studies, for example, housing benefit is by no means applied for by everyone who is entitled to it.
Regardless of an impending recession, the formation of reserves is central to economic independence.
Editorial office finanzen.net
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