As the Covid-19 pandemic continues, more businesses are collapsing and unemployment is rising. Most people are fearful that a massive downturn is looming. Or has it already arrived?

While economists have yet to declare a recession, the economic data appear to point to one.

Whatever the case, it is better to be safe than sorry. Here are eight tips to minimise the financial harm of a recession.

Tip 1: Invest in yourself to increase earning capacity

You are more valuable when you invest in yourself. Check your career path and consider taking online classes to improve your credentials. Find a mentor, a person with a higher position and wider experience in the same career.

Don’t wait for unemployment to increase your value. Salaried workers should concentrate on performing above expectations. Being an irreplaceable asset is a much better label than a potential layoff when cutbacks are necessary.

Those who run a business should create a client list and update their marketing strategy. To improve repeat revenue and draw potential buyers, establish a positive partnership with clients.

Tip 2: Settle all debt, especially high-interest loans

Most people understand the importance of prioritising debt payment in a financial plan but don’t do it. All debt must be settled, but prioritise high-interest loans.

In a downturn, the chances of being laid off are 50% higher. Losing a job with no replacement income means savings will be quickly depleted. Assets might have to be sold and you could even end up bankrupt and homeless.

Tip 3: Maintain an emergency fund of at least six months

According to a 2018 Agensi Kaunseling & Pengurusan Kredit report, more than half (53%) of those earning less than RM2,000 could not afford emergency expenses totalling RM1,000.

The basic principle of an emergency fund is to set aside at least six months’ worth of daily costs, but the more the better, perhaps the target should be a year.

Start by listing common costs, with essential needs at the top.

Tip 4: Cut down your expenses

Analyse expenses and look for cheaper options. List every single expense and the alternatives and choose the best, focused on usefulness and cost. Then work on a viable budget.

Be aware of every ringgit spent. Don’t buy things that depreciate in value and don’t replace big-ticket items unless absolutely necessary. Invest the cash to generate more money instead.

Tip 5: Increase your income

Try to increase income before a downturn hits. Pick a good side hustle or look for a position that pays better. It is faster to improve one’s career while still employed.

Edit your CV, submit applications and network, network, network. Spending more time on social resources can be of greater significance and quality than a résumé.

If that is not possible, evaluate your existing job and work harder towards a promotion. Aim for the month’s employee recognition and make sure your record and image at work are good. Job cuts begin with the weakest employees.

Tip 6: Improve your credit score

The importance of a good credit rating may not be obvious when the economy is taking a nosedive. The prices of assets also drop during a downturn along with interest rates.

This might put you in a position to buy a property, but the first thing banks will look at is creditworthiness.

To maintain a healthy credit rating, periodically review your credit report, pay off debt before the deadline and keep a sharp eye on any fraudulent details that could ruin a rating.

Tip 7: Work on your financial mindset

Bracing the mind to be financially conscious in a recession is crucial. Emotions are pure. Begin by expressing appreciation to those around you.

Mindfulness, prayer and breathing exercises lower stress and maintain good health. Listen to motivating podcasts and a mentor. Ignore bad headlines unless they have an impact on your life. Be conscious of negative thoughts.

The strength of personal finances does not rely on loan fees, political parties, the securities exchange or any other power. They can have some effect, but be aware that anyone can flourish in any marketplace.

Stay positive, look for opportunities and be prepared to thrive even during a downturn. And remember nothing lasts forever.

As Warren Buffett said during the 2008 downturn, “We are still in a downturn, we will not be out of it in some time, but we will get out in the long run.”

Tip 8: Maintain your investing momentum

When a downturn begins is not always clear, but there are indications when one is on the horizon. Share prices fall consistently. Unemployment rates go up and eventually the panic starts.

Instead of following the herd and dumping shares or cashing out, invest. Buffett said, “Be fearful when others are greedy and be greedy only when others are fearful.”

If everyone is selling, it seems counterintuitive to buy. But when things hit a low, they can only go up.

To successfully time the market is impossible, so invest regularly and consistently for the long term using capital that is not immediately required.

Many individuals earn a profit when markets are low. A recession can be looked at as a splendid opportunity rather than a tragedy.

This article first appeared in MyPF. Follow MyPF to simplify and grow your personal finances on Facebook and Instagram.