If you keep an eye on the news, you’ve likely begun to wonder how to prepare for the recession. We’re no longer asking “are we headed for a recession?” but “when” and “how should I recession-proof my finances or business.” As recently as July 12, 2022, the International Monetary Fund cut its growth projections for the U.S. economy by 6%, predicting a 2.3% GDP expansion in contrast to the June prediction of 2.9%. The International Monetary Fund, or IMF, also raised unemployment rate estimates for the next three years and warned of systemic risks to both the U.S. and global economies.
But despite the looming economic slowdown, there’s no reason to panic if you prepare. If you’re scratching your head, wondering how to prepare or even make money in a recession (yes, it’s possible!), you’ll want to keep reading. While you may already have a good grasp on your personal finances, you can secure your fiscal standing further with these 14 tips for recession resilience.
1. Build or Contribute More to Your Emergency Fund
Every astute professional should have an emergency fund and a savings plan. Your emergency fund is your financial cushion in the event of unfortunate circumstances and having one waiting to use (if you should need it) can help you feel more comfortable during a recession. Be more frugal in your spending, so you have the funds to put a little more money in the bank every paycheck.
2. Keep Up Your Normal Contributions
While you may be hesitant to invest in retirement funds or a 401K while money is tight, think again. Take advantage of compounding interest and invest, even while the market’s not doing its best. You don’t want to let the “future you” suffer due to your current fear. Additionally, if your company offers a 401K match, now is the time to take full advantage of that perk.
3. Review Your Benefits
On that note, take another look at your company’s benefits package. Are there any benefits you’re not currently taking advantage of that could help you save money? Determine whether you are using company programs or matching plans that are either discounted or come from pre-tax dollars.
4. Develop a Crisi-tunity Mindset
Look at the “crisis” of a recession as an “opportunity” — or a “crisi-tunity.” As The Washington Post reports, a bear market can be an opportunity for a long-term investor, so keep your eyes on the long-term prize and remember to buy low and sell high.
(Speaking of finding opportunity in crisis, download a copy of our free Cristunity eBook, authored by Arootah founder and CEO Rich Bello.)
5. Revisit Your Budget and Expenses
If you’re feeling the crunch and need to save money, revisit your budget, and review your expenses. As Nasdaq suggests, ask yourself: What are my financial priorities? Can you cut down on frills such as going out for drinks or eating at restaurants? Can you unsubscribe to the paid apps you never use? Take a look. You might be surprised at how often you prioritize unimportant expenses over more critical ones (such as the money in your saving account).
6. Pay Down Your Debt
Prioritize paying off your debt right now, especially debts in accounts with higher interest rates. Pay off tax-deductible debt accounts, such as educational loans, to get cash back during tax season. Make a plan to use a set amount of your monthly income to pay off debts. Commit to paying it off consistently.
7. Don’t Take on New Debt
While you’re actively paying down that old high-interest debt, do yourself a favor and avoid taking on any new obligations for the time being. Use this time to strengthen your willpower and discipline by not spending more than you can pay off in a single month. Don’t take on new debt for large purchases, such as a new car or second home. If you see these opportunities, resist making any purchases until you have the cash or liquidity to afford them without debt.
8. Focus on Your Career
Want to make money during a recession? Increase your value by developing your career. Professional self-development is often a no or low-cost opportunity that may result in a better position with a higher salary. Brush off that resume, update your LinkedIn, and attend a networking event to see what career moves may be available to you during a recession.
9. Find New Streams of Income
Even if you’re not looking to switch companies or careers now, you can likely find a new income stream. You have many options for new income, from freelancing to consulting on the side to creating online resources for others in your field or community.
10. Diversify Your Investments
If your current investments have a high risk, consider diversifying and looking at more stable and less risky asset classes. Not sure where to start? Seek advice from an investment professional and ask about moving money into professionally managed, low-cost vehicles such as ETFs (which also have tax advantages over mutual funds). Likewise, consider investments you might not have previously, such as bonds, commodities, or real estate.
11. Use Technology to Your Advantage
Struggling to keep track of all your money and investments? Use technology to your advantage by looking into budget tracking tools, online banking, and online investing. These apps can help you stay disciplined when you are stretched thin in a recession. Don’t lose control of your personal finances by taking on an “out of sight out of mind” mindset. Use an app to keep yourself informed as your net worth fluctuates.
12. Don’t Panic
Recessions are nothing new, and ebbs and flows in the marketplace are normal. Don’t panic and stop investing or pull out of the market altogether. You can expect a strong economy and a bull market eventually. By taking the proper steps to protect your wealth, you can easily weather the next few years of economic downturn—and even experience financial growth.
13. Manage Your Expectations
Though you shouldn’t panic, you also shouldn’t expect a robust ROI either. Keep your expectations realistic, both in terms of your earnings and your budget during this time.
Communicate your need for fiscal responsibility with anyone around you who may be impacted by changes in your finances. Family members need to know what’s going on and adjust their budget accordingly. That may mean having your kids cut back on spending or asking your spouse to join you in finding an additional income stream. If you are a business leader, talk to your team about how the recession might impact your company and how you plan to mitigate such risk.
The Bottom Line
A recession is brutal for anyone, but it doesn’t need to be negatively life-altering. Protect yourself during the downturn by making the right decisions. You may even see benefits via new opportunities.
Need support creating a life aligned with your highest priorities? An Arootah coach can help you identify your goals, formulate a concrete path to reach them, then hold you accountable until you see the results you want.