What Does a Recession Mean for Home Owners?
The key problem in a recession is the lack of business confidence. Business owners lose clients and either downscale or freeze hiring. If you are a business owner, you need funds to ride through the storm. If you are an employee, you need funds to allow for redundancies or any other loss of income.
What's Different About This Recession?
If you cast your mind back to the dark days of 2008, the sudden and unforeseen collapse of Lehman Brothers triggered a recession that spread across the world. This time, however, the trigger seems to be the after-effects of nurturing the economy through Covid. The difference is that this is a much slower-moving event and we have time to prepare.
3 Things You Can Do to Prepare for a Recession
1: Minimise Your Luxury Spending
When things are going well, it is easy to spend money on luxury items. What are you spending money on that you don't need? Today is the day to sit down and complete a budget.
2: Restructure Your Mortgage
With uncertainty in the economy, you want to make sure your mortgage is setup if the worst should happen. Too many people had bad Credit Reports in 2008-2010 from not being able to pay their debts.
3: Think About Your Non-Mortgage Debts
It's definitely time to review your Secondary Debts:
- •Consolidating your debts so that your regular payments are smaller
- •Using some spare cash to pay off any high-interest secondary debts
- •If you have a small Student Loan remaining, consider paying it off
1 Thing You Definitely Shouldn't Do in a Recession
Unless you are preparing to buy a home in the next 6 months, it would be extremely unwise to move your KiwiSaver into a more conservative fund. The markets have already come back from their highs so any transfer to a Cash Fund now locks in those losses.
On average, markets jump by 28% the year after a major crash. This is not a time to exit.
Do It Today. Prepare, Don't Panic
- •Complete a budget and remove luxury expenses
- •Talk to someone about your mortgage
- •Look at your secondary debt and get them under control
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