Preparing for Economic Collapse
Economic distress comes and goes, some bouts are felt harder than others. However, no matter the number of experiences one has with it, just hearing the word "recession" or "economic collapse" can cause the hair on the back of your neck to stand up.
Here is the thing to remember; panicking has never saved anyone, especially not during times of Economic collapse. Another bitter truth is, you cannot predict when or how soon it would happen, or for how long it may last. Still, there are steps you can take to prepare for an Economic collapse.
How do You Prepare for an Economic Collapse?
While it's a good idea to have your finances in order, other steps are still necessary to stay on track and avoid any pitfalls. Unlike most preparedness guides, no, this does not involve you stocking up on groceries, building a bunker, or hiding wads of cash under your mattress. Read on to find out how you can prepare your finances to withstand most levels of economic distress.
What Does Economic Collapse Mean?
To put it simply, an economic collapse is a period of very severe economic instability conditions. This is when the economy of a nation is in distress for a certain period of time, sometimes lasting for years or even decades. During these times of financial distress, a country is often plagued by civil unrest, high unemployment numbers, high bankruptcy rates, currency volatility, high credit rates and an unfortunate rise in death rates.
Signs of Economic Distress
Knowing the signs of the onset of economic distress is key to begin/ramp-up your preparedness for economic survival.
~A high unemployment rate is a number one indicator of economic distress. This is because economic distress denotes a decline in economic activities, as well as Labor–a key economic input alongside capital–drops as output declines. For example, during economic distress there most likely tend to be a dip in overall consumer spending. This can lead to less demand for products and in turn affect the business selling those products, forcing businesses to downsize their staff.
~High Bankruptcy Rates
~Taking on too much debt can result in a country getting to a point where they can't pay off their bills. This growing debt defaults and numerous bankruptcies then capsizes the economy. For example, the housing bubble popped in the mid-aughts causing many to foreclose and lose money, which directly led to the Great Recession.
~High Credit Rates
~High credit card usage typically indicates that consumers are making purchases, which is advantageous for the GDP. However, if debt default rates spike too high, it can be a warning sign of a downturn in the economy since people's ability to pay is declining.
~When there's a high unemployment rate–which is an indicator of economic collapse–and insufficient economic growth, these two determinants can cause an increase in civil unrest which is defined as riots, protests, and any other forms of civil disorder and conflict
~When a local is under increased civil unrest the economy will struggle. More in-fighting means less community involvement, often including more public property damage and human endangerment.
~Rise in Death Rates
~Most countries experience decline in living conditions and unemployment during economic recession which can negatively impact majority of the population's health leading to an upward tick in suicide rates, illicit drug use, homelessness, and alcohol-related disorders.
When preparing for economic collapse, it is highly important that you know where you stand financially. Financial status varies by person. So considering your own financial economy into account is imperative to determine the level of preparedness you need to obtain.
~If You Have Debt
~If you have a steady source of income, then you should work towards making extra payments to pay off any outstanding debt. Being debt free gives you this feeling of peace and freedom during a recession.
~Imagine having to spend most of your paycheck on paying off debt during a recession that features high-everything. If you don’t want to be put in that situation, it makes sense for you to start now and offset any outstanding debt.
~Then, once that's settled, you should cover your four walls–by this we mean: food, transportation, utilities, and shelter– and stock up a little extra cash. However, if there's going to be a possibility of losing your job, then it is recommended to hold off on paying your debt and ensure your “four walls” are covered first. Once secure, you can resume paying off debt gradually.
~If You are Actively Saving
~Having an emergency savings plan is a great idea. If you've already got one, keep it up. Think of how easy you could rest knowing that if serious economic collapse did happen, you wouldn't worry so much about your finances. Although, this doesn't just apply during times of economic collapse.
~If you own a home, have a non-recession proof job, or a lot of expenses; having a savings plan is always recommended. For example, if you are a homeowner, it is recommended to have a $5,000 savings to take care of any housework that could need to be done. If you work in a non-recession proof industry, job loss could be a major concern. Having a decent savings could hold you over until you can get a new job. Considering scenarios like these should be part of every preppers journey.
~If You are Building a Retirement Plan
~Investment–has many people know it–has its ups and downs. Be it mutual funds, a 401k or the stock market. However, the roller coaster rides, you should be patient and avoid changing your current plans out of fear. If you're currently experiencing loss in your investment, it's better to leave your money be. Stocks rise and fall all the time. So, don't pull your money out right away. Leave your money where it is and just wait. Wait for the upward swing if possible.
~If you are in-need of urgent money, then you may be left with no choice but to cash out. However, by “cash-out” we reference stocks and bonds only. It is never recommended to withdraw your 401k. That is money that should remain stable until you officially retire.
Preparing for a Full Economic Collapse
Let's face it, we can't run from an economic collapse, nor can we fight it. But, what we can do is fully prepare and be a little more frugal especially when the going gets tough. So, look out for early warning signs on the nation's economy or stock market's performance.
Getting Your Own ‘Financial Economy’ in Check
The money decisions you make daily can greatly impact your finances and how you should prepare for an economic collapse. Below are a few quick tips to get your own "financial economy" in check;
~1. Review Your Current Financial Status
~It is very important to be clear of where you stand financially and how it could change is the economy is distressed. Ask yourself these questions:
- How much money do I have readily available?
- How much cash can I get immediately if a situation calls for it?
- How much debt do I owe?
- What are my basic monthly living expenses, such as food, transportation, shelter, child care, and health insurance?
- Are there any major life events coming up that would incur significant expenses like weddings, retirement, pregnancy, etc.?
- Are there any expenses I can cut from the budget?
~The 1st step in being well prepared for economic distress is to understand your spending habits. This references making sure you are living within your means and getting rid of all unnecessary spending to enable additional savings and credit payoffs. The goal is to have an emergency fund that covers for you and your entire household for 3-6 months. If you don't have one, then you should start planning toward it.
~2. Bolster in Home First
~No matter the circumstances, as a prepper, you should continuously stock up on food, water, and other life sustaining supplies and utilities. This is even more important during potential economic distress.
~3. Pay off Debt
~To get your financial economy in check, you need to get out of debt as quickly and as comfortably as possible. This is quite important, especially when challenges of potential unemployment come up; you won't have to worry about paying off any debt.
~One of the worst kinds of debt is Credit Card debt–This is because of the high interest rates that a lot of people have. If you can avoid it completely, that is the best case. However, if you have credit card debt or other high interest loans, you should focus on paying it off before economic collapse kicks in.
~4. Evaluate Your Current Career Path/Opportunity
~With economic distress, comes high unemployment rates. Luckily, there are many recession/distress proof industries. As we saw during the recent Covid-19 Pandemic, even with exceedingly high unemployment rates, businesses like popular restaurants, grocery stores, delivery services, and technology-based companies excelled.
~ When economic distress is a topic of discussion evaluating your current career path should most definitely be on your checklist. Some companies/industries like theme parks, souvenir shops, and clothing stores, take severe downturns. If you work in similar industries, taking some time to plan and find ways to transfer your skills and begin your career in a more stable and less risky path may be necessary. If you're worried about making a career change, you should keep an eye on your current career path and monitor its stability to determine if a switch is necessary.
~Another great way to build relevant skills is to start a side hustle. Search for a stable industry that you're passionate about and can do on your own or in addition to your ‘day job.
~5. Try Padding Your Safety Net
~The key to ensuring that you stay on top of your game is to ensure that everything can remain as close to status quo as possible. By padding your safety net, you will provide yourself a nice little nut in case you need to dip into these reserves to pay your basic bills. Starting a savings regimen will keep a stable stream of money, no matter how small, running into your savings account.
~6. Stay on Top of Your Finances:
~One of the most important aspects of staying on top of your finances is to stick to a realistic budget. Trying to spread your money too thin or limit your spending too much can cause bouts of depression, excessive purchasing, or credit use. Things you should be doing include:
- Cutting out unnecessary spending
- Calculating your expected income
- Making a plan for your leftover money (pay credit down, add to savings, etc.)
- Ensure your necessary expenses are paid first
~Managing your finances can be quite difficult and stressful, but in the long run, it is ideal to help you thrive in the face of an economic disaster.
Prominent Economic Disaster Examples
Economic Disaster isn't an uncommon occurrence; They have been happening since currency was invented. Some prominent Economic Disasters include:
~The Great Depression of 1929–1939:
- The great depression was a devastatingly severe world-wide economic disaster.
- At the height of the depression (1933) nearly 25% of the workforce was unemployed.
- Farm prices dropped so much that many farmers lost their home and land.
- The banking system collapsed
- The stock market crashed on 10.24.1929
- The ‘New Deal’ aided in the recovery, but still took years to bring the economy back alive.
- While officially over in 1939, it wasn’t until 1941 that the unemployment rate came up after the world war opened up millions of jobs.
~The Dot-Com Bubble between 2000-2002
- Between 1995-2000 the dot-com craze grew and grew until it popped in mid-2000.
- By October 2002 the tech side of the stock market had fallen by 78% causing some big-tech companies to shut down. Those that didn’t, still lost about 80% of their stock value.
- Most of the general population was not affected by the dot-com burst, but many of those that invested and tried to take advantage of the new industry lost their shirts.
~The Financial Crisis of 2007–2008
- The financial crisis was another world-wide economic crisis. It was the most serious financial crisis since the Great Depression.
- This crisis was almost directly related to the housing bubble boom and subsequent pop of the late 00’s.
- They unfortunately targeted low-income home buyers.
- This Financial Crisis sparked the Great Recession of 2003-2010
~The Great Recession of 2003-2010
- While the Financial crisis of 2007-2008 sparked the great recession, several economic disasters across the globe added to the devastation.
- The great recession is categorized as a global period of general decline.
- This recession as not felt equally around the world. Long since developed regions like the US, South America, and Europe were thrown into severe and sustained recession.
- More recently developed areas like China and India suffered very little, with their economies actually growing during this period.
Most of us have had unpleasant experiences with economic downturn at some time or another. They seem to be recurring beasts that can’t be avoided. What we can do from our own end is to prepare in order to survive the many challenges that come with an economic collapse. Knowing the signs of economic distress, reviewing your own financial economy, and make some thoughtful budgetary changes are all essential in preparing and surviving economic collapse.