5 Ways to Prepare Your Personal Household for an Economic Downturn

By Yusuf Osman, MBA 

I know we have all heard the saying that change is inevitable, but there’s a second part to that quote that doesn’t receive as much attention: Change is inevitable, but growth is optional. Nowhere does that apply more than in 2021 when talking about preparing for an economic downturn.

After the last two years of pandemics and lockdowns, masks and vaccines, economic recoveries and downturns, sometimes it takes all you have just to make it through the day. How in the world are you supposed to have enough energy left to plan ahead for the next unfortunate event?

But it’s in those moments when the “growth is optional” concept comes into play. It’s in those moments where you don’t want to think, plan, or, quite honestly, do anything, that you can create growth from a changing situation—even an economic downturn. Consider these 5 strategies to better prepare for life’s most unexpected moments.

Assess Your Emergency Fund

Now is the time to ensure that you have enough money set aside in your emergency fund to cover 3-6 months of necessary living expenses. This includes mortgage or rent, utilities, groceries, transportation, etc.

With all the layoffs and uncertainty, many experts have suggested maintaining a larger emergency fund, closer to 6-12 months of expenses. If you’re single, or your household only has one source of income, consider saving on the higher end of this scale to make sure you’re covered in the event of a job loss or reduction in income.

However much you save, be sure this money is held in a highly liquid account. It needs to be readily available and easily accessible, but it should also be in an account that offers a competitive interest rate so that you don’t lose out on potential growth.

Track Your Expenses and Build a Budget

Many people don’t realize just how much they are spending until they are tasked with writing it down. Once you have a good idea of where you currently spend money, you can begin to build a budget around where you want your money to go. Some expenses will be non-negotiable (like utility bills), while others may have some room for cuts (eating out). Over time, your budget can be modified as needed so that you are better prepared to withstand potential fluctuations in income.

Review Your Risk Management Strategy

Risk management is a great way to safeguard what you’ve already built. Unmanaged risk can mean the difference between maintaining an ample emergency fund or not having enough when you need it the most.

Be sure to review your insurance policies and make sure to bring them up to adequate coverage levels. This should include life, health, auto, and homeowners insurance at a minimum, but disability and long-term care coverage should be considered as well.

These risks are often overlooked and can be devastating to your household finances. Making sure you are adequately covered now will save you time, money, and energy in the future.

Protect Your Investments

It’s common to feel worried when you see your investment values fall during a financial crisis, but should it be inevitable? By subscribing, without consideration, to the mantra of “buy and hold (no matter what)”, you relegate your portfolio to the fluctuations of the market. Now, many people make the mistake of selling near the bottom of a market downturn, staying on the sidelines during a good portion of the recovery, and then jumping back in closer to the top of the next upswing. By doing this, you are quite literally selling yourself short. Alternatively, we could turn this on its head by selling near the top, staying in cash as the market searches out the bottom, then jumping in as the market gets ready for the upswing. Does that sound a little like “buy low, sell high”? And please, don’t let anyone tell you it can’t be done!

It’s crucial that you maintain a level head and don’t get caught up in emotional investing, especially in times of economic uncertainty. Proper asset allocation and diversification are key factors that will help you along the way along with a dynamic, focused investment strategy that responds to current economic and market conditions.

Rely on a Professional

Sometimes the best thing you can do to prepare is to get a second opinion. Economic downturns are inevitable, but financial stress and uncertainty are not. With my Life by Design Plan and Flex Investment Strategy, we will work together to assess your needs and take a proactive approach to preparing for the future. Together, we can create growth from uncertainty. Reach out to me at  (613) 447-1770 or yusuf.osman@gmii.ca​.

About Yusuf

Yusuf Osman is a Financial Advisor at Global Maxfin Investments Inc., an independent full-service financial advisory firm dedicated to helping clients create financial freedom, security, and peace of mind. With over 30 years of experience in the finance industry, Yusuf is committed to educating, engaging, and inspiring as many people as possible to take control of their finances. He spends his days developing a thorough understanding of his clients’ lives, concerns, and dreams to help them build a financial plan that keeps pace with changes in both the markets and their lives. Yusuf graduated from the University of Ottawa with a bachelor’s degree in Science and earned an MBA in Finance from Queen’s University. To learn more about Yusuf and his Dynamic Wealth Program for Women, go to Dynamic Wealth Program for Women | Dynamic Wealth.