Recession Proofing Your Finances (Article)

May 2, 2022
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Recession Proofing Your Finances

With the threat of nuclear war looming, global supply chain problems, increasing energy costs, rising interest rates, and 40-year high inflation it seems like a global recession is increasingly likely. Defined as two consecutive quarters of negative economic growth as measured by a country’s gross domestic product (GDP), economic forecasters and professional investors alike are all now grabbing headlines with their dire predictions. Recession is more than just a scary word, for some it could mean a risk of homelessness, food insecurity, and a lifetime of financial ruin.  If you haven’t ever given thought to how you would survive a bad recession, now is the time, and to help you we’ve come up with a list of things you can do now to prepare as well as structural changes you should make to your finances to help you avoid ever having to worry again.

Things you can do now:

  • Diversify your income. This could be a second job, a side hustle, or more than one family member working for different employers. That way if one kind of job dries up, you’ve still got another one.
  • Get a roommate. There are lots of cost saving efficiencies, and economic security that comes from sharing a space and expenses.
  • Sell things you don’t need while there are still buyers to be found and save the cash.
  • Refinance debts to lower monthly required payments and save the difference.
  • Request an increase in available credit on existing credit cards but spend less. This increases available resources and builds good credit in the event you must use it.
  • If you own a home acquire a free Home Equity Line of Credit (HELOC) to use in emergencies. Again, this increases the availability of resources in the event you run out of cash.
  • Work with your advisor to select the right investment mix to ride out the recession. Lots of money can be made in the stock market by riding out the volatility and market declines.

Structural changes you should make:

  • Pay off your debts and commit to not spending money you haven’t earned yet. We don’t often think of it this way, but lenders don’t care if you lose your job, they still want to get paid back.
  • Commit to saving 5% of your gross income each month in a free high yield savings account for emergencies and opportunities. Cash is king in a recession when credit risk is at a high and opportunities are abundant.

Purchase real-estate and pay it down. Even better would be a multi-family home that provides you with a place to live, a place for others to live, equity resources, and another source of income.

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