Australia’s current experimental monetary policy indicates the RBA is going to push the cash rate to 0.5 per cent by early next year. If you’re wondering why and if whether that means we’re facing economic crisis, the RBA says no.
Predicting financial downturns is difficult even for those trained to spot them or even those who have faced one in the past. Your best defence is always to be prepared no matter what falling interest rates bring.
Financial planning has its merits
No one is immune to a recession, so we’ve come up with 5 ways you can protect yourself in the event of a recession.
1. Pay Down Debts
Ease the financial pressure by paying down your debts or boosting your mortgage offset accounts, particularly for the higher interest rate or non-tax effective debts.
Your credit card is a good place to start. Consider taking balance-transfer offers with zero APR (Annual Percentage Rate) on the table. This kind of offer may not always be available in more challenging times.
2. Build an Emergency Fund
Even if you feel secure with your job and believe you’re not going to be affected by a recession, building an emergency fund (ie. A mortgage offset) is a suitable way of managing debt in times of financial stress.
Build a fund that can cover at least three to six months of expenses. If you’re paying off debts right now, you should still spare some part of your income for a future buffer.
3. Postpone Large Purchases and Expenses
It may not be the best time to buy that second car you want or upgrade your kitchen with the latest in appliances.
Wait until the last cash rate cut has been delivered and wait for how the economy would react before you make any major decision that requires a large outlay or borrowing.
4. Live Within Your Means
In theory, it’s easy to see the wisdom of not spending more than what you’re earning. In reality, it’s a little harder to stick to that plan.
That doesn’t mean you shouldn’t try, though. Try taking baby steps that will ultimately help you spend less and save more. For instance, instead of dining out in expensive restaurants, opt for a more economical choice. Instead of taking a vacation in the Caribbean, consider a cheaper alternative and then pick an off-season to go.
Always look for ways you can save and if you find one, take it. Above all, if you have to take out a loan for unnecessary expenses, it’s time to abandon the idea and just really live within your means.
5. Mind Your Investments
The best way to go about this is by tapping the help of a financial expert who can help you identify your risk profile should a recession happen.
A good financial advisor will introduce conservative options, and help you decide whether to change investment strategies or invest somewhere else.
Hiring a professional with your best interest in mind, will help you protect your wealth and save money down the line.
Adopt a healthy financial habit
At a time when we don’t know how the monetary policy will pan out, it’s best to be prepared for all contingencies. More than that though, these are all good financial practice to adopt.
So, whether you’re looking for smart ways to prepare for a recession or not, you would benefit a lot from putting all these into practice. Get into a good financial habit today!
If you need help planning your finances and creating asset protection strategies, contact a Chan & Naylor accounting specialist here. Let us help you!
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