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How to recession-proof your money

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Everywhere you turn, there’s talk of a recession.

What started out as a vague possibility a year or ago has now become more likely. The global spread of coronavirus Covid-19 has been a key tipping point for the economy, where markets were already starting to plunge.

Australians aren’t immune to recession fears either. Finder’s Consumer Sentiment Tracker, which has surveyed over 11,000 respondents since May 2019, found this month 62 percent predict that the country is on the brink of economic collapse. This is the highest it’s been since Finder started tracking the data.

We’ve weathered consecutive quarters of slow growth, along with a horror season of bushfires and flooding. Enter: the coronavirus. 

Whether a recession will hit isn’t for me to say. But the good news is that you can navigate through uncertain times by being prepared. Below are my seven tips for how you can recession-proof your finances.

1. Live within your means

A looming recession means tightening the belt, and being super frugal. Separate your wants from your needs, and don’t spend more than you can afford. This goes for business and personal life. 

Do a financial audit and work out where to cut back. One of my missions this month is to review every single subscription and regular payment the business makes. 

On a personal level, you could swap a night out at the bar for a bottle of wine at home, or swap a gym membership for outdoor workouts. 

Review your financial products: are there bigger savings to be had elsewhere? We’ve just launched the Finder app, which is an Australian-first app that combines personal finance management tools with automated product comparisons, and it’s set to revolutionise the way we compare. The Finder app analyses your financial products and will tell you if you could save money by switching to a better-value product. Download the app in the App Store or Google Play Store. 

2. Get networking

Networking is crucial in a downturn because it can form valuable professional connections you can call on down the track. A recent LinkedIn study found that 85 percent of jobs are filled through networking.

If you lose your job or don’t feel secure in your current job, having a big professional network can act as a safeguard against unemployment. 

With COVID-19 hitting physical networking events, you’ll need to focus fire on your social accounts. 

Business leaders should also make the most of networking. Say yes to speaking opportunities, panel discussions, workshops – anything that can help increase your public visibility.

Keep your online presence and profile up-to-date and, most importantly, continue to nurture the relationships you already have. 

3. Diversify your portfolio

It’s dangerous to stockpile all your investments into a single asset. Certain industries or companies can take a battering during a recession. Without diversifying your assets, you’re vulnerable to losses. Smart investors diversify their portfolio across a range of asset classes including fixed income, commodities and equities. Think about other assets like cryptocurrency too. 

If you have a well-rounded portfolio, chances are that some of your investments won’t do as poorly during a recession – some may even increase in value. 

4. Generate a second income stream

Finder research shows that you can earn up to $10,490 per year with a side hustle. The trick is to think outside the square – what skills or assets can you monetise? Technology and collaboration tools make it easier than ever to pick up a second form of income. You can be an Uber driver, rent out a room on Airbnb or list your services on Airtasker. And this is just the start. 

Using the gig economy is a great way to supplement your existing income. Be prepared to hustle! 

5. Refinance your home loan

Mortgage interest rates are historically low, with some going for as little as 2.49 percent. Refinancing to a lender with a lower rate can be a useful way to free up cash during a recession. For instance, if you have a $550,000 mortgage at the average variable rate of 4.55 percent and a 30-year loan term, your minimum monthly repayments will be $2,803.

But if you refinance to a rate of say 3 percent, your repayments will drop to $2,318. This can save you around $480 per month – that’s roughly $5,700 per year. 

Keep in mind you’ll need at least 20 percent equity in your property to avoid forking out for lenders mortgage insurance (LMI). You want to make sure your property hasn’t dipped in value first.

6. Maintain a good credit score

This is especially important for both consumers and small business owners. Lending can become tight during a recession, but this is a time when some businesses may need to turn to 

credit to stay afloat. Even if you want to borrow on behalf of your business, your lender will still take your personal credit score into account, so you need to make sure it’s up to scratch. 

You can do this by making repayments on time, keeping a low credit limit and regularly monitoring your credit report for any changes. You can check your credit score and comprehensive report for free in the Finder app too.

7. Don’t panic!

Recessions are inevitable. The stock market is cyclical. This is all part of the natural process. You won't be able to make smart, long-term financial decisions if you're panicking. If you’re stressed, use this as an impetus to check your finances and get on track. 

Are your investments allocated where you want them? Do you have enough money in your emergency fund? Rather than panic over what the media tells you, you’re better off doing your own research and looking at the factors that will actually affect you on a personal or business level. 

Staring down the barrel of a recession isn’t comfortable. But taking steps to protect your money means that if a recession hits, you’ll be ready.

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