As a global recession looms it’s understandable that many Australians are worried, but there are measures you can take to prepare for an economic downturn.
Two-thirds of private and public sector chief economists recently surveyed by the World Economic Forum expect a global recession in 2023.
“The current high inflation, low growth, high debt and high fragmentation environment reduces incentives for the investments needed to get back to growth and raise living standards for the world’s most vulnerable,” WEF managing director Saadia Zahidi said in a statement on Monday.
Angel Zhong, from RMIT’s School of Economics, Finance and Marketing, says she understands why people are worried.
Dr Zhong has a few tips for people trying to navigate the forecast recession, but she also wants to assure people it’s only going to be temporary.
She told The New Daily there is plenty of research that shows the downturns don’t last, and the markets always bounce back.
Instead of panicking, she has a few sensible steps you can take to safeguard yourself and your finances before any recession.
Have a budget and stick to it
Dr Zhong says the best thing everyone can do is have a budget and stick to it.
“You need to invest in some time upfront, but just a little bit of time can actually give you the peace of mind over the long run, and financial freedom as well as financial wellbeing,” she said.
Having a budget and sticking to it is important whether or not there is a financial crisis, Dr Zhong said, and she stressed that you don’t need to have much financial knowledge to devise a budget.
Set aside some time to figure out what money you have coming in and what is going out. By working this out, you should have a holistic understanding of your finances, Dr Zhong said.
This is also the time to work out what your financial goals are.
When working out your budget, do it from a long-term perspective.
“That will actually help you to manage your goals and reach your goals more easily,” Dr Zhong said.
Everyone’s budget will be different, but once you have one, you can work out how you will implement it.
You may allocate a certain percentage of your income to your daily spending, some to recreational purposes, some to expenses like bills and rent, and then a certain amount to put towards goals.
One thing everyone should really consider is putting aside money for a rainy-day fund, or money to be accessed if there is a financial emergency.
This amount will be different for everyone, but Dr Zhong suggested at least 10 per cent of your pay.
She adds there are plenty of resources online and apps that can help with your budget.
Spend mindfully, without falling into traps
With everything going on and knowing that people are stressed, brands are likely to engage consumer psychology experts to help them entice people to spend.
If you have a budget you know how much you can spend, but it’s important you are buying things intentionally – the things you really need or really want.
There are plenty of marketing traps that brands use – one that can be particularly enticing is “buy X, get one free”.
“I think a lot of consumers are just so attracted to the word ‘free’. But you really need to do the maths,” Dr Zhong warned.
Say if you buy three products, with the promise of getting the fourth free – that might not work out to be the best deal.
When coming across such “bargains”, read the fine print and do your research to make sure you aren’t being duped.
Although it might be tempting to opt for a buy now, pay later service when purchasing to fit your budget, Dr Zhong advises against this.
It may be handy in the short term, but you might end up paying more if you miss a payment.
Also, short-term lending can also mean consumers buy more things they don’t necessarily need because paying the cost back in increments seems more affordable, she said.
“That’s why a budget matters.”
