How to recession-proof your finances

If you’ve been following the latest financial news in America, it might look like the U.S. economic expansion, which has been going on for over ten years, is nearing its end. It’s been one of the longest economic expansion in record, but at this point, there are ominous signs that indicate the long expansion may be heading for a crashing halt.

Here are some of the latest headlines that are keeping economist on edge:

1. Global Slowdown around the world.

2. U.S. Manufacturing PMI unexpectedly contracts for the first time in 3 years.

3. The U.S. Fed cut interest rate

4. The yield curve inverted.

5. Slow down in business investment in the USA — uncertainties

6. Trade Wars between the USA and China.

The combination of all these signs is what is triggering the recession warnings. The world has become a global village. If you manufacture an item here in the USA, it is not unusual to know that your customer is in Asia, or somewhere in Africa. So what goes on elsewhere around the world may end up affecting the USA.

It is difficult to accurately predict if or when an economic recession can happen, but the goal of this post is to help you get ready financially, should there ever be another slowdown in the economy.

Here are seven tips to help you weather an economic recession.

1. Pay down debt

The level of debt in our country is unbelievably high. The U.S. government itself is in debt to the tune of over $21T. Student loan debt, mortgage, auto loan, and credit card debts are in trillions of dollars. I am in no way blaming people for being in debt, I have been there. The goal here is to help you prepare for any impending economic slowdown. To recession-proof your finances, you must pay down all and any outstanding debt — more specifically, high-cost debt, such as your credit card balance — to create some breathing room in your budget. Most of the time, economic downturns lead to job loss. If you’re worried about job security, paying off your debts might bring you more peace of mind.

My recommendation is to use the debt snowball practice to pay off your debt. (You list your debts from smallest to largest and start paying them off). Even if you’re not worried about losing your job in a downturn, it’s still good financial practice to pay off debt. Imagine what your life will be like if you have no debt — You will be able to achieve financial peace, and not have to worry about how to meet your financial obligations.

2. Boost emergency savings

If you lose your job during an economic downturn, having an emergency fund can make a lot of difference. In a country where too, many people live paycheck to paycheck, missing a paycheck can sometimes mean foreclosure for some people.

By making sure that you build your emergency fund, you will be able to tap into the savings when you have an emergency such as a job loss. This way, you will still be able to take care of your necessities while looking for another job.

My recommendation is that you should save 3 to 6 months of your monthly income as your emergency fund. Listen to this podcast episode to find out more information about why you need the emergency fund.

3. Find ways to reduce your living expenses

With or without a downturn, it’s always a good practice to review your finances from time to time to understand and explore ways you can make more savings. This may involve reviewing your cable subscriptions, utility bills, insurance payment, credit card payment, or even your car note. Are there other options out there that will provide a similar service for you, only cheaper? This is an excellent exercise to get accustomed to. For example, I review my insurance premium every six months to make sure that:

1. I have the right coverage, and

2. I am not paying too much for the services.

During this exercise, you may be able to eliminate some items — For example, maybe you’ve cut your cable subscription, and you now found out that you have multiple streaming services — Netflix, Hulu, Disney+, DirectTV now, Amazon Prime. Do you need all of these services at the same time?

Recommendation: Go ahead and eliminate anything you don’t need. I wrote an article on how to take control of your finances. Check this post about how to save more money by cutting down your living expenses.

4. Stick to your budget

I hope you have a budget that you use to organize and plan your finances on a month to month basis. If not, I created a budgeting guide for you. You can download this free book on how to create your budget. This book will guide you on the steps to take to create to create your budget.

We all have different kinds of expenses on a month to month basis. We have expenses that are essentials for every month — Food, Housing, Utilities, Insurance. You will have discretionary spending as well — dining out, vacations, cable T.V. subscriptions. You can easily eliminate anything in this category because they are just nice to have.

Senator Elizabeth Warren popularized the 50/30/20 budget rule in her book “All Your Worth: The Ultimate Lifetime Money Plan.” The basic rule is to divide after-tax income into three categories, spending 50% on needs and 30% on wants while allocating 20% to savings.

I know different people have different plans, but you can use this as a guide.

My recommendation: Create your budget and comply with it. And always ensure that you live within your means.

5. Start a side business

In the gig economy of today, there are tons of ways to make money that is different from the traditional 9 to 5 jobs. For example, do you know you can register on freelance websites and make money by offering services to other people? If you know about Web-designs, graphic design, copywriting, voice-over, photoshop, technical writing. You can immediately start making money on websites like Fiverr, Upwork.

Even if you can’t do that, if you have a car, and you can drive, you can register your vehicle and drive with Uber, Lyft, or deliver meals for Doordash, or do Walmart delivery.

If these are not your strong suit, you can think of a service that you can start after work. That way, you can learn to generate some income for yourself.

Closing Thoughts

No one can predict when or if an economic recession can occur. It is always better to do your best by putting yourself in a good financial position, to minimize the pain if there was an economic slowdown. The tips & recommendations shared today will help you do just that. None of us has a crystal ball. The purpose of this post is to provide information about the economic outlook and provide guidance that can help you withstand some period of downturn.

No one can predict the future, BUT

1. Be Prepared by recession proofing your finances.

2. Don’t panic, because no situation is permanent.

3. Empower yourself by innovating & creating opportunities.

And always ask yourself ‘What can I do personally to put myself in a stronger financial position, so I can sleep better at night when the time comes.’