Is a recession looming? If so, how do you prepare? We’ve heard the word recession thrown around during these unprecedented times as we adjust to social distancing and closed economies.
One of my favorite sayings is, “The best time to plant a tree was 20 years ago. The second best time is now.”
Ideally, you should prepare financially during good times, when you have the flexibility to plan for the unknown. However, you can begin your journey toward financial stability even through the rough times. These strategies work in all realms of financial planning.
1. Stay Liquid
Increase your cash flow and reserves as much as you can. The more cash you have on hand, the more equipped you’ll be to meet all of your financial obligations.
So, what does this look like? Side hustle? Investments? Let’s learn more.
2. Have a solid emergency fund.
We recommend 3-6 months of emergency funds to start. However, in Wealth Builder’s Academy, we teach the importance of working toward a 12-month emergency fund. A full year’s emergency fund provides peace of mind, knowing you can meet all of your household expenses no matter what happens to your income sources. If you don’t have a one-year spending plan or if you need to revise your goals, you can grab our free template here. Having the numbers in plain sight will take the unknowns out of your finances and eliminate the guesswork out of planning. Knowing your money is the key to making sound financial decisions.
3. Reflect on your life.
It’s important that you continually reflect on your life and revise as needed to meet your financial goals. Take a moment to think. Do you like where you are in your career? Do you enjoy your work? Are you satisfied with your income? If not, don’t be afraid to look for other opportunities and continuously strive to improve! This may mean relocating, changing jobs, or learning new skills.
A recession isn’t necessarily a time to hunker down in fear. Opportunities are out there! Yes, some sectors will be affected or negatively impacted by an economic downturn. However, many businesses will continue to function as usual and even thrive. Look at this as your chance to position yourself closer toward new and advantageous opportunities.
4. Have multiple income streams.
Start investigating how to gain multiple streams of income, if you don’t already have them. Multiple income streams mean that you have more than one source of income to rely on. This can be anything from side-hustles to investments. Having several income sources gives you the security of knowing that if something should happen to one income source, you can depend on another to provide you with the means to meet your financial obligations.
5. Keep investing your money.
Continue to invest if you want to build your wealth over time. Stay consistent with your investments so you can take advantage of the highs and lows of the market. If you stop investing every time the market is down, you deprive yourself of the ability to buy at low prices. In other words, when you invest only when the market is doing well, you end up paying more. Consequently, this ends up lowering your overall returns. Resist the urge to cut back on investments, and instead look for other ways to bulk up your cash reserve.
6. Don’t be in a rush to fast-pay debt.
Okay, this next piece of information may feel counterintuitive or contrary to what some other gurus recommend. We don’t want you to rapidly pay off your debt! Yes, we said it. If rapid debt payoff means that you neglect your emergency fund and pull from your liquidity, avoid this route.
Let’s be clear; rapid debt payoff isn’t necessarily a bad thing. However, depending on your financial situation, rapid debt payoff can stop you from building your cash reserve. In a recession, you can’t rely on being debt-free and having available credit. You can, however, tap into your cash reserve. Keep this in mind as you weigh your options.
7. Protect your assets.
Maintain your important insurances like health, life, and auto. Yes, insurance is pricey and can feel like a luxury when times get tough. But insurance is an essential part of building your financial stability–which you need now more than ever. Continue to protect your assets, even if eliminating the insurance costs would have saved you a little bit of money in the short term. That way you and your family are protected no matter what life throws at you.
8. Keep your resume updated.
Be sure your resume is up to date and ready to go at any given moment. Even if your job is secure, you want to make sure that your resume is ready to go so that you can hit the ground running if something unexpected happens.
9. Look for ways to cut your expenses.
If your income has dropped or your expenses have increased, you may need to adjust your budget. Look for the areas in your budget where you can make temporary cuts just until you get back on track. However, it’s crucial to avoid reducing expenses that affect your long term well-being, such as health insurance. The most significant budget categories for most people are housing, transportation, and food. These are the three categories that you may want to look at when deciding what to reduce. It’s about looking for quick, big wins that will minimize your expenses.
10. Give back to your community.
As you cut back on your spending, think about your contribution to the economy. If everyone stops contributing to the economy, this will prolong the recession. Think about the people and services that you rely on and that rely on you in return! If you are doing well financially during the recession, consider keeping your current services. This might include the “extras,” such as lawn maintenance, housekeeping, beauty services, and memberships to community nonprofits. Small actions can have a significant impact on the community as a whole.
We hope these tips help you meet and exceed your financial goals. What are you doing to recession-proof your finances?
Comment below and share with our community. We’d love to hear from you!