Recent world crises and the resultant weakening of the global economy has left many fearing the worst. There is talk of a global recession, or worse yet, a complete collapse of the economy.
While it is impossible to say whether such a severe economic downturn is upon us, understanding how to survive a potential economic collapse (whether now or in the future) could save you and your family when the times get tough.
WHAT IS AN ECONOMIC COLLAPSE?
An economic collapse is defined as a severe breakdown of the economy at a national, regional, or territorial level. It is a broad term used to describe bad economic conditions that are not part of the ordinary business cycle of expansion and contraction.
An economic collapse usually signals the start of a significant economic contraction, recession, or depression, which can last months or even many years.
WHAT CAUSES AN ECONOMIC COLLAPSE?
There are various events and circumstances that can trigger an economic collapse, which makes it difficult to attribute it to a single cause. An economic collapse can happen suddenly as a result of an unexpected crisis such as the onset of a war, natural disaster, political unrest, and various other events.
It can also be the culmination of a series of events or ongoing circumstances which signal a weakening and fragility of the economy.
WHAT ARE THE RESULTS OF AN ECONOMIC COLLAPSE?
The results of an economic collapse are equally difficult to predict, as the ripple effects of a severe economic downturn are widespread and impossible to accurately track. Some general and obvious results of an economic collapse are:
- A rise in job loss and unemployment.
- Loss of value of investment markets which results in the average investor losing significant value in their portfolio.
- Slowing of production, and therefore less new innovation, fewer startups, and so forth.
- A potential hyperinflationary environment in extreme cases where the cost of basic items increases dramatically.
- An increase in poverty which can also lead to crime, civil unrest, and various other social issues.
- Widespread business failures leading to shutting down of companies and laying off of staff.
HOW TO PREPARE FOR AN ECONOMIC COLLAPSE
Preparation is key in order to successfully survive an economic collapse. It is important to not become too complacent when the good times are rolling, as you never know when the situation may change for the worse.
Follow these practical guidelines to ensure you are well prepared :
1. KEEP AN EMERGENCY FUND
Having liquid cash safely deposited in a savings account with your bank can be a lifesaver in times of economic crisis. First of it all, it will retain its value while market linked assets such as equities deteriorate.
Secondly, it will provide you with the best liquidity so that you can quickly access your money during a time of extreme need. It is recommended to keep at least 3 – 6 months’ worth of expenses in an emergency fund.
2. BECOME DEBT FREE
The additional pressure of carrying debt if there is an economic collapse can put you in an extremely difficult situation. You should start working towards becoming debt free today.
This will reduce your monthly expenditure and will keep you from landing up in a precarious position should you lose your job in the future. Begin by paying off your highest interest debt such as credit cards and other short-term loans, and then move onto lower interest debts such as house mortgages.
3. CREATE ADDITIONAL INCOME SOURCES
The risk of losing your primary job is elevated during an economic recession or collapse. You can mitigate the negative consequences of this by creating additional sources of income now before the bad times are afoot.
We live in an age of boundless opportunities to make money on the side remotely. You can start your own web business or do freelance consulting work.
Even if you have a great job, it is well worth diversifying your income sources and establishing other ways to sustain yourself. Even a few hundred dollars a month can make a big difference in a time of need.
4. REDUCE UNNECESSARY SPENDING
Most people tend to spend recklessly when times are good and then suddenly try to adjust when there is a downturn or they lose their job. This is a big mistake for two reasons:
- Firstly, if you make overspending a habit in your regular life, it becomes extremely difficult to adjust your spending habits when you need to do so. If you practice living with less even during the good times, it will be much easier during a financial squeeze.
- Secondly, wasting unnecessary money on a regular basis means you have less to put into savings each month. We spoke about the importance of having an emergency fund, and living off less now can help you keep that fund growing for when the rainy day comes.
5. MAINTAIN A DIVERSIFIED INVESTMENT PORTFOLIO
Entire markets and industries can deteriorate during an economic collapse, while others might be more protected. Maintaining a diversified investment portfolio will ensure that you are not overexposed to one specific asset class, sector of the economy, or graphical region.
While your overall asset value might still decline significantly, you will be more protected from the risk of complete financial ruin if you keep your eggs in different baskets.
