Prepare for Recession with These 5 Steps

Recessions are scary. The United States appears to be closing in on one, or in the middle of one depending on who you ask. The entire world may be as well, are you ready? If not, take these 5 steps to prepare!

#1 Increase Emergency Fund 

Recessions bring financial uncertainty. Strained employers begin laying off workers, laid off workers are financially strapped, and those with jobs are doing more with less. An emergency fund reduces the stress around economic downturns. If your current emergency fund is one month of expenses, aim for two-three. The pain felt while saving will alleviate greater concern as a recession begins. 

#2 Reduce Debt 

Once you have established an emergency fund it’s time to reduce debt lines. Debt becomes a fixed cost and will be problematic in a recessionary climate. Recessions lead to lay-offs and an increasingly tight labor market. If you are unfortunate enough to be laid off, less debt will mean your emergency fund stretches further. Start by paying down debt lines with the highest interest rates. Higher interest rates cause more debt. I would use the following order; credit cards, auto/vehicle loans, and student loans. There are several types of debt, so make this specific to your situation. 

#3 Expand Side Hustles 

Side hustles are great ways to increase cash flow. A productive side hustle can offset a potential lay off. If you are extremely lucky, the side hustle will become a full-time hustle. Great side hustles are; drop shipping, affiliate marketing, and digital product sales. For these side hustles you need a computer and internet connection. YouTube and Google searches can teach anyone how to start. An effective side hustle in a recession would cost very little and produce income.  

#4 Reduce Spending 

Reduce your spending. Create your budget and ear mark needs, must haves, and wants. Recessions lead to greater risk to your income. A tighter budget around spending will allow you to put more money to Steps 1 and 2. In good economic times, my advice would be to increase income and reduce spending. In recessionary times, there may not be options to increase income. Prioritize expenditures and get rid of frivolous spending. Sorry Starbucks and McDonald’s, we won’t be seeing you until after the recession. 

#5 Begin Investing 

Those who are lucky enough to maintain their current income, and have some left after bills should focus on investing. Recessions will put good companies on sale, as Warren Buffet would say. Good companies will survive a recession, but their stock prices during a recession will be impacted drastically. Stocks bought during a recession may be 30-40% lower than future prices. This is a deep discount. Take advantage. 


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s