The economy is always in flux. It’s a fact of life. Recessions are inevitable, and so are recoveries. They happen every few years, but there’s no telling when they will come or how long they’ll last.
And while everyone wants to prepare for their financial future, not everyone knows how to do it – especially when you’re starting from scratch! The good news is that you don’t have to be an expert on finances or economics to be ready for any situation that comes your way.
You can do plenty of things right now (and over time) so that whenever something happens with the economy, you’ll be prepared enough financially to make smart choices about what happens next.
Here are 10 things you can do now to prepare financially for a recession.
Meet With Your Financial Advisor
The first step is to meet with your financial advisor and make sure you are on track. Your advisor should help you create a plan that involves meeting your short-term goals while also helping prepare for the next recession. If a recession hits and you haven’t prepared, it could take years or even decades before you regain all of your losses.
Many people think they don’t have enough money saved up in their 401(k)s or other retirement accounts, so they’re afraid of investing during a recession because they think it will cause them to lose even more money. But that’s not necessarily true—it depends on your risk tolerance, which investments have performed well over time, and what type of portfolio balance works best for you (i.e., bonds vs. stocks).
Build Up Your Emergency Fund
It’s important to have an emergency fund that can cover at least three months’ worth of living expenses, or six months if possible. In case you lose your job or need to take time away from work for any reason, having this much cash will help to keep you afloat until you find another source of income.
An unexpected car repair or medical procedure can be enough to throw even the best-laid finances into disarray – so setting aside extra money for emergencies is essential for keeping peace of mind about your financial state.
If you don’t already have emergency savings account set up now, you should consider starting one. Progress is progress; even if it’s only a little bit each month, any extra will help cushion the blow when things get tough!
Prepare A List Of “Negotiables”
Look at your expenses and prepare a list of “negotiables” – things you could trim if it becomes necessary. Negotiables are things you can live without during a recession, but they’re so important to your life that they’re worth having now and then.
Instead, focus on creating a list of expenses that aren’t essential but matter enough to make them worthwhile in good times and bad: maybe it’s cable TV so you can watch sports games or Netflix; maybe it’s fancy coffee every morning (I’m not judging), or weekly manicures and pedicures; Whatever those things are for YOU–those are what should go on your list!
Consider Shifting Any High-Interest Debts You Have Now To Lower-Interest Offers
Do you have any high-interest debt? If so, now is the time to consider shifting it to a lower-interest offer. There are many options out there, including:
- Using a debt consolidation loan (commonly known as a balance transfer) that has a 0% offer for 12-18 months and then switches your payment back up to the normal rate of interest. This way, you can pay down your principal quicker than if you had just made monthly payments on both loans during this time.
- Paying off one credit card with another credit card with a lower APR rate on balance transfers (this is typically not done within the same bank because they track all transfers made in their system).
Look At Your Pay Stubs
Checking your paycheck is something you should do periodically, but now it’s essential. Are you paying for anything out of your paycheck that you don’t need?
Open enrollment for your benefits may occur between now and when the recession hits, so thinking through these benefits in advance can provide a more optimized financial picture during an uncertain time.
You should also check your paycheck for these factors:
- You’re receiving all of the money that is supposed to be coming out of each paycheck.
- Your pay stubs are issued on time.
- The amount deducted from each paycheck matches what was agreed upon, so there aren’t any surprises when tax season comes around every year.
Update Your Resume
Unfortunately, recessions are usually plagued with high unemployment rates as well. You may feel secure in your career, but taking time to update your resume is one of those steps you’ll likely not regret doing, even if you end up not needing it.
No matter the economy, keeping your resume up to date is important. You never know when you’ll need it, so don’t leave it on the back burner until things look up.
Make sure your resume is easy to read and professional looking; nothing will make a hiring manager stop reading faster than a messy document with typos or poor layout.
Make sure each section has an appropriate title (such as “Professional Experience” or “Education”) so that anyone who sees it knows what they’re looking at—and doesn’t have to guess where you fit in the company’s hierarchy based on the information provided in your resume alone.
Create A Freelance Plan, Just In Case
Is there a hobby you could monetize or a service you could provide others? It may or may not be possible that this income is enough to replace your normal income, but that doesn’t even have to be the goal.
The goal is to provide SOME income should something happen so you can keep the essential bills paid and food on the table. Plus, dreaming about how you could make money doing something you love or are good at can be a fun exercise!
Get On A Plan With Your Money (We Can Help!)
A financial plan is a roadmap for your money. It helps you reach your long-term financial goals and prepare financially for unexpected events that can disrupt your life.
A good advisor will help remove some of the stress from these decisions by providing recommendations based on their expertise regarding all aspects of debt management, including credit scores, mortgages, 401Ks, etc.
A financial plan can help you prepare for a recession by:
- Identifying your risk tolerance (how much risk you are willing to take)
- Determining how much money you need to save each month
You can get started on a personalized financial plan by scheduling a Q&A call with a coach here!
Stay Connected To Your Money
During times of uncertainty, things can change quickly. Stay aware of your finances and be decisive, but check in often and re-assess as needed.
The goal isn’t to spend a ton of time managing your money. The goal is to create an easy and consistent routine that helps you stay proactive. Don’t wait “for something to happen” to look at what you’ve got going on with your money.
When times are tough, it’s easy to fall out of the habit of tracking expenses and looking at balances regularly. But remember: you can’t make good decisions without good information!
Make a conscious choice to stay connected with your money so that when things get rocky, you’ll have the tools and knowledge necessary to help yourself back up again.
We recommend creating a plan with your money; this will give you confidence and accountability along the way. If this seems daunting, but you’re ready for more help getting started on this path, schedule time here with us.
Find An Accountability Partner (Or Hire A Financial Coach)
Many people do better when they talk through problems and solutions. When we say things out loud, it sounds very different than when that same thought is just in our heads.
If we experience a recession, the news can stroke fears and worries. Having someone to bounce ideas off and create strategies with you can be a lifesaver during times of uncertainty.
If you’re not ready for that level of commitment, consider finding an accountability partner—someone who’ll help keep you on track as you work toward your goals. You can find one online or in person; either way, make sure they’re invested enough in helping you succeed that they’ll follow through even when things get tough.
It’s Never Too Late To Get Ready For A Recession
You can never be too prepared for a recession, and it’s better to be safe than sorry. You can’t predict the future, but you can prepare for it.
Preparing for a possible economic downturn is one of the best things you can do to protect yourself and your family from being hurt by it.
If you’re ready for many different scenarios, then when one does occur, it’ll be less likely you’ll suffer any major financial losses or have to worry about them.