The question of how to prepare for any economic downturn is a relevant topic in today’s world. When thinking about preparing for the next global financial crisis, many people may think of purchasing precious metals. But what if they don't want to invest in physical gold? Shouldn't we start planning now to save money so we'll have some cash no matter what happens in the future? To answer these questions, let's first examine how the economy works and what could lead to future recessions.
First, it's helpful to understand how economies work. When looking at the U.S. economy, we should know that GDP (Gross Domestic Product) accounts for everything produced in the United States. This includes goods produced domestically, goods imported, services provided in-country, and taxes collected. In short, GDP measures the total wealth created by a country. As an example, consider an economy where a person owns 1000 acres of land that produces crops. The GDP for this country would be $10 million per year. If this same person imports products from overseas, the GDP would increase to $11 million. However, if the same person hires 10 people to perform manual labor, the GDP would go down to $9 million. Similarly, if the government spends their money on military expenditures, infrastructure building, etc., the GDP would decrease.
As mentioned above, an economy is based on consumption and production. When a consumer purchases something, the producer receives revenue. Conversely, when the consumer buys less than expected, the producer loses revenue. At times, consumers purchase even though they aren't willing to pay full price. When a company sells less than anticipated, their revenue decreases, leading to lower profits. These profit losses are then passed onto shareholders who receive dividends. Dividends are usually paid out quarterly.
In theory, the market is supposed to find the balance between supply and demand. If the market is producing enough to meet the demands of consumers, then prices are low. If the market cannot produce enough product, then prices raise to make sure everyone gets what they need. Most economists agree that inflation occurs when there isn't enough money to satisfy everyone. Prices rise.
This brings us back to our original question of what to do to prepare for the next financial crash. Many people believe that buying Bitcoin is a good strategy. When the stock market crashes, people buy stocks hoping to make money off the fall. Then, when the economy recovers, those investors hope to sell these stocks for a higher price. Unfortunately, when the market rebounds, fewer people buy stocks. Because fewer people are buying stocks, the price goes down again. So, does this mean that we're just buying ourselves out of the next recession? Not necessarily. We can still benefit from owning Bitcoin while avoiding high risk investments.
Bitcoin is digital currency, meaning that it doesn't exist physically. Instead, cryptocurrencies are stored electronically and distributed online. While Bitcoin was founded in 2009, Ethereum came later in 2015. There are currently over 2200 known cryptocurrencies!
1. Get out of debt
The first thing you should consider doing if you want to avoid the next financial crisis is get rid of your debts. Paying off credit cards means freedom and saving money at the same time. If you have student loans, find ways to reduce them as soon as possible. You don't have to pay them back immediately, but you need to make sure you're paying less than 10% interest per year. If you can lower your payments at all, you'll have more money to put towards savings and investments.
You could even try taking out a personal loan to help you get out of debt. There's nothing wrong with using borrowed money to pay down high-interest credit card debt. Just make sure you pay it back with faster repayment terms and always keep enough money set aside to repay it.
If you can't pay off your debts right now, start putting away money regularly. Set up automatic deposits into savings accounts so you won't miss your money until the next paycheck comes around.
2. Start investing
Next, start investing in things that aren't going to lose value over time. One great way to build wealth is to invest in real estate. Investing in property gives you something tangible that you can use later in life, plus, it's relatively safe since you can't really lose any money unless something happens to the home.
Another good option is to buy stocks. Stocks come in many different varieties, so make sure you know what you're buying before you go ahead and invest. 3. Build an emergency fund
This step may seem obvious, but some people still fail to save money for emergencies. Having an emergency fund provides you with peace of mind and helps protect yourself from unexpected expenses. You can use your emergency fund to cover anything from car repairs to replacing broken appliances.
Set up a separate account just for your emergency fund, then add enough money each month to reach your goal. Try not to spend any of your regular income while building up cash in this special savings account. Once you've reached your goal, transfer any leftover funds to your checking account.
3. Take charge of your finances
Even though getting out of debt and starting to save money sounds like a lot of work, these steps aren't difficult or complicated. You just have to take control over your finances and live by a budget. Decide how much money you earn each week and stick to it religiously.
Once you're done sticking to your budget, you can begin planning your future financially. Think about what you might do in five years, ten years, twenty years? Do you want to retire early? Save for your children's education? Don't let your financial situation dictate your dreams! Use your imagination and create goals that will help you achieve your long-term plans.