Could Ramsey’s advice help you weather the storm?
- Many experts believe a recession is coming.
- Dave Ramsey describes recessions as similar to hurricanes, as they’re inevitable and their impacts are hard to predict.
- You can prepare for the fallout if you take steps to get ready, such as increasing your savings and income and decreasing your spending if possible.
If you listen to many experts, an economic storm is brewing. Rising interest rates combined with high inflation could potentially result in a period of downturn called a recession. Although some experts believe the country may already be in a recession, others think one is likely to arrive in 2023.
If we go into a recession, it’s important to be prepared. After all, Dave Ramsey describes recessions as akin to hurricanes, and when such a big storm comes, you don’t want to be left unprepared.
Why is a recession like a hurricane?
According to Dave Ramsey, “recessions are kind of like hurricanes,” and there are a few reasons why these periods of economic contraction are similar to a major adverse weather event.
“It’s hard to predict when they’ll hit and how much damage they’ll cause,” Ramsey explained. “But instead of downed trees and smashed houses, the damage from a recession usually looks like this: lost jobs, a tanking stock market and bankrupt businesses.”
Ramsey pointed out that, like hurricanes, recessions are inevitable and will arrive at some time. And, like hurricanes, recovery from them is possible — but the key to making sure they don’t damage your own situation is to make sure you are prepared before the storm hits.
How can you prepare for a coming recession?
When it comes to getting ready for a recession, you won’t be putting up hurricane shutters or moving to high ground. Instead, you’ll be getting your financial house in order and making sure you have the resources available to cope with an economic downturn.
There are a few ways you can do that, including taking the following steps:
- Increase your savings: If you have money in a high-yield savings account, you’ll be prepared for whatever adversity life throws your way in a recession. You won’t have to worry about where the money to pay bills will come from if your income takes a hit. And you won’t have to worry about selling investments during a market downturn and taking a permanent loss just because you need the cash. Your savings will act like hurricane shutters, shielding you from the worst of the storm.
- Reduce your monthly bills: If you have fewer ongoing financial obligations, you won’t have as much to worry about in case of a long economic downturn. You can get by on less. Reducing or eliminating the balance on variable interest rate debt (like credit cards) can be especially helpful since your rates will go up when interest rates rise to help fight inflation.
- Diversify your income: if you have multiple income sources, you won’t see your financial life damaged as badly if one of them takes a direct hit from the storm. You can keep earning money from other places. You can diversify your income by taking on a side hustle, starting a small business of your own in your spare time, or investing in income-producing assets.
The more secure you are financially, the better you’ll be able to withstand a hurricane of a recession. Start taking as many of these steps as you can ASAP before the storm is at your door.
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