How to recession proof your finances

Am I the only one who loves doomsday scenario shows and disaster movies?

I still watch re-runs of Doomsday Preppers and live for shows like Fear the Walking Dead.

Ok, I low-key (ok, ok…high-key?) want to become a doomsday prepper.

Specifically I want to go through wilderness training, learn hand-to hand combat, get in top physical condition, learn to live off the land and grow my own food. The whole nine-yards.

But if I’m being truthful, I’m a girl who hates bugs…and dirt for that matter. Living off the land or off grid would be complete culture shock for me. So this is probably nothing more than an imaginative indulgence.

A girl can dream though.

Now, the chances of an EMP knocking the power off-grid or a zombie apocalypse happening….um, not likely.

Much more likely to occur. A financial doomsday- i.e.. the next recession.

Oh, ready or not, it’s coming.

How do I know? I’m not a financial analyst or a staunch market watcher, but I don’t have to be one in order to predict a recession.

Because a recession is always coming. The economy has been booming for quite some time but don’t be lulled into a sense of complacency and comfort.

A financial storm is brewing.

It’s not a question of ‘if’ but ‘when’.

But the most important question is…

Are you prepared for it?

The Great Recession of 2008 is still pretty fresh in the minds of some. It wasn’t too long ago that the subprime mortgage lending crisis led to the collapse of the housing bubble, which resulting in the greatest financial crisis since the Great Depression of the 1930s. Record numbers of delinquencies and foreclosures abounded because average, everyday Americans had over-leveraged themselves and were backed into a corner financially. During the Great Recession unemployment rates hit all time highs, and banks were bailed out in order to stabilize the economy and prevent a collapse of the banking industry.

It took years to recover.

I personally wasn’t too affected by the Great Recession of 2008. At the time I was working on building my career and finishing up a graduate degree. I wasn’t yet a homeowner and I was nowhere near close to retirement. So my very small portfolio wasn’t too devastated by the economic downturn.  I didn’t have much to lose! Also, by working in healthcare I had fairly stable employment- as close to “recession-proof” as one can possibly get.

Here we are 10 years later and I have a lot more to lose if a recession hits.

Things have been going well for the several years running and the stock market has hit record all time highs. For some the Great Recession is a distant memory. Credit has again begun to flow freely (though not nearly as much as in the mid- 2000s) and life has been pretty good.

No matter whether the recession occurs begins tomorrow or in 3 years, NOW is always the best time to get your financial house in order.

#staywoke

8 Ways to Recession Proof Your Finances

 

1. Ditch debt.

Debt is an albatross around your neck. As long as you are saddled with debt it will be impossible to get ahead, save, and build wealth.

To start, tally up all of your debts and begin to track them on paper or on a spreadsheet. List them smallest to largest. Make the minimum payment on everything but the smallest debt.

Throw every extra penny onto the smallest debt. When the smallest debt is paid off move on to the next smallest debt, throw all of the money from the previous payment onto that debt and repeat. Voila! You have started your debt snowball!

2. Build a solid emergency fund.

Most financial experts suggest a minimum of 3-6 months of expenses in savings and I agree! I would actually err on the side of caution and aim higher if possible. You may not like the idea of having TOO much cash on hand sitting in a savings account earning what essentially amounts to zero interest. It may be tempting to use that cash to invest instead. But, remember that the emergency fund is not an investment vehicle. It is your safety net.

3. Draft your scorched earth budget.

Your current budget likely contains a lot of fluff at present (I know mines does). In lean times, the fluff is the first to go. Manicures, pedicures, Starbucks…sorry, but they have to go.

Your scorched earth budget should be your expenses drilled all the way down to what is absolutely necessary to maintain your four walls- food, shelter (including utilities), basic clothing, transportation, and I would add health care costs.

Challenge yourself to cut back on unnecessary items now while financial times are good. It will ease the transition if a recession occurs. Great lead into to my next point…

4. Get comfortable living with less.

In other words stop buying crap you don’t need. Establish some intentionality with your purchases and really hone in on the difference between needs and wants.

Don’t make yourself miserable, but begin to challenge the consumer-driven excess that has become the norm in society. The job of marketers is to make us want stuff that we don’t really need. Their job is to separate us from our hard-earned dollars.

Put the breaks on unhealthy spending habits and decrease discretionary spending. In short, begin to live like the recession is imminent (because it is) by cutting out unnecessary purchases.

5. Master the art of the side hustle.

There are several reasons why you need multiple streams of income.

For one, you are hedging your bets by not putting all of your financial eggs in one basket (your full-time job). If you were let go from your job tomorrow, additional streams of income can cover the shortfall in the interim.

Two, multiple streams of income allow you to quickly generate extra cash to advance your financial goals and super charge your savings rate. This may not be possible with one source of income alone. Not sure what a side hustle is? Not sure of how to get started? Check out my side hustle reports for additional tips and inspiration.

6. Save, save, save. Did I mention save?

Not just for the aforementioned emergency fund, but also for retirement and wealth building. During a recession there will be lots of opportunities to buy on sale. And I’m not talking about buying shoes or useless trinkets!

When everyone else is panicking and pulling money out of the market, that is the perfect time to buy low. It may be disheartening to look at your investment statements and see accounts drop significantly in value. But remember those losses are only on paper. The losses only become real if you panic and sell to avoid further losses.

If you are young enough and retirement if far, far away, you can afford to be a bit less risk averse and reap great financial rewards in the process.

7. Invest strategically and continuously.

I have read tons of advice that says ‘now is a bad time to invest’ because the market is high. This sounds suspiciously like an attempt to time the market, which is a big No No. I am not smart enough to think that I can time the market. I’m not being falsely modest here..I don’t think anyone is that smart. The market will win every time if you try to time it.

The best way to build wealth is to invest incrementally and regularly regardless of  how the market is performing. Always buy low when stocks and funds are on sale, but don’t hold onto a pile of cash forever waiting for the perfect time to dive into the market. The perfect time is always now.

One caveat-*I do recommend that you tackle high-interest debt before diving into non-retirement related investing). If you are in debt, paying off debt first is the best investment you can make.

8. Stock up on food and household items.

Now, even though you aren’t actually preparing for a zombie apocalypse it wouldn’t hurt to have to a healthy stockpile of supplies on hand.

Take advantage of sales now while you have cash on hand. Stock up on staple items that you always use. I’m not suggesting that you go out and buy 82 jars of peanut butter, unless thats your thing. No judgement here!

I prefer to stock up on household items such as tooth paste, toilet paper, deodorant, and soap at rock bottom prices in order to function more comfortably with a scorched earth budget during lean times.

 

So, how would your finances hold up if a recession hit today? What change can you make today to improve your financial outlook?

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