We don’t have a crystal ball, and we can’t predict the next recession. Yet the general consensus is that we’re headed that way. This can be a source of fear and contention for many households. Unfortunately, those fears may lead to hasty decisions that have unexpected consequences. Decisions made out of fear are rarely thought through, and don’t always have the best outcomes. Fortunately, we believe in inspiring confidence and making sure that you remember YOU are in control of your finances, and this is a good thing. Regardless of what’s happening in the economy, you have the power to participate, or not. So in the spirit of control, we’d like to share with you some Prosperity Economics strategies fro recession preparation.
10 Strategies to Prepare for Recession
1. Have a More Robust Emergency Fund
During times of recession, you can expect the unexpected. That could mean job insecurity, rising costs, and more. While it’s always a good idea to have an emergency fund with as much money as possible, this is the time to get serious about savings. If you only have 3 months’ worth of expenses saved, try to save for 6 months. If you have 6 months, aim for 9 months. And if your income fluctuates because you’re a business owner or independent contractor, it’s not a bad idea to have a year’s worth of expenses saved.
It’s going to take time and dedication, and Currence can help. With the Currence app, you can learn how to restructure your finances so that you save first, and still have plenty of money leftover to cover your monthly expenses. It’s all about changing your order of operations. A Prosperity Economics Advisor can help you get set up with Currence for free.
2. Have More Cash
By “have more cash” we mean that now is not the time to have tons of dollars tied up in investments, and especially not in qualified plans. Now is the time to reallocate your dollars into assets that are more “safe.” During recessions, people tend to lose a good chunk of their portfolio in one fell swoop. And while the talking heads of finance might try to convince you it’s no big deal, it can take years (even a decade) to get back to where you started, let alone beyond that point.
It’s better to get out while you can. Predictability is critical in unpredictable times. (And hey, once things settle, lots of opportunities will be “on sale,” and you’ll have to cash to invest if you wish.)
If you want a short-term place to store your cash, try CDs, savings accounts, and treasury bills. If you’re thinking long term, whole life insurance can be a good place to store your cash AND protect your family.
3. Get Out of Debt
We’re firm believers that good debt exists. However, consumer debt is pure cost. If you can pay down that debt, now is the time. You’ll save money on interest costs, and even give your credit score a nice boost, which can come in handy when lenders tighten up their criteria. Once you’ve paid off consumer debt, it’ll feel great to have all that extra money to funnel into your emergency or opportunity fund.
There’s some contention about which method is best: the debt snowball or the debt avalanche. While the avalanche method is certainly more financially efficient, the snowball method can be more psychologically motivating. We’re inclined to believe that the best option is the one that will work for you. Here’s a good video explaining the differences.
4. Cut Down on Bills
While saving up a few months’ worth of expenses is a helpful cushion, it’s also a good idea to reduce your expenses where you can. This will stretch your emergency fund a bit farther, and help you accelerate your savings. In addition to paying down your credit cards, you want to think about keeping your payments as low as possible. For example, don’t refinance your home from a 30-year mortgage to a 15-year. You’ll increase your payments and decrease your flexibility. It’s also a good idea to hang onto the car you have.
Another way to reduce your monthly bills is to eliminate memberships and subscriptions you don’t use, negotiate bills, make your home more energy efficient, and downsize your home or storage unit.
5. Invest in Success
Recessions can sometimes mean job insecurity. That’s why it’s a great time to invest in your personal development. Earn new certifications, learn new skills, or even start a side hustle. Any way thta you can make yourself more valuable to you current employer, and also to potential future employers, the better. And if you own your own business, try finding new ways to support your current customers and clientele.
Be sure to stay well-networked too. Keep in touch with people in your industry, as well as industries that you might want to break into.
6. Develop Additional Income
If you’re struggling to lower your expenses, then work on raising your income. It’s never been easier to develop a “side hustle.” There are many sites dedicated to finding freelance gigs, so if you can write, compose, design, and more, there’s likely a job for you somewhere. If you like to craft, you might find success selling your items on Etsy or another site. There’s always demand for tutors, nannies, and physical labor like lawncare. If you’re moving into a new house, consider keeping your current home and renting it out. And if you’ve got a lot of cash handy, you could always invest in something not correlated to the stock market that’s projected to do well in a recession.
7. Improve Your Credit Score
In recessions, credit standards get much tighter. That means if you want access to cash or other financing opportunities, you might just need a better credit score. Paying off debt will definitely give your score a boost, yet there are other ways to give your score a boost, too.
- Don’t close old accounts, even if you pay off the balance
- Keep one small revolving balance you can pay off every month
- Lower your credit usage to below 30% of capacity (ideally 0%)
- Do not apply for new credit unless absolutely necessary
Not only does having a better credit score help you secure financing if you really need it, it also helps you secure a better interest rate.
8. Non-Correlated Assets
If you’re really interested in investing during a recession, turn away from assets that are correlated to the stock market. During a recession the stock market is more dismal than usual. You want true diversification, which means expanding into several different asset classes. That way, you’re truly not putting all your eggs in one basket. This could include cash flowing real estate, oil and gas, and more.
And while whole life insurance is not an investment, your cash value is guaranteed to increase each year, and does not decrease. Therefore, it’s a solid place to store cash that outpaces a savings account at the bank.
9. Get Your House in Order
During a recession, most people are so focused on money that they don’t think about other important things. Namely, people don’t consider being prepared for emergencies. While it’s always prudent to be prepared for natural disasters, power outages, and more, it’s especially prudent during a recession. You don’t want to be stuck in an emergency with no way to get what you need.
This list is a good start:
- Have non-perishable foods, potable water, batteries, and alternate heat or power sources
- Have actual cash on hand, lock it in a safe or stuff it under the mattress
- In your car, keep jumper cables, a gas can, emergency meals, and any other emergency necessities
- Start a garden—there’s no better place to get food than your own back yard, especially if you can’t get to a store
10. Recession-Proof Your Mind
Lastly, don’t buy into the mindset that because there’s a recession, you have to participate. What we mean is that you don’t have to operate under the mentality that anything that can go wrong will go wrong. Prepare for the unexpected, but don’t expect it. Thriving begins in your thoughts, and you CAN thrive in a recession.
Practicing gratitude can prep your mind to appreciate what you have, and see the value in the small things. This goes a long way during times of economic uncertainty.
Unplug from disaster news. Don’t buy into what the news is selling: that everything is bad. Instead, seek positive news that inspires and uplifts you. Or better yet, create positive news wherever you go.
And lastly, be mindful of how your thoughts shape your experience. You have more power than you know, and by choosing to focus on the things you can control, you take back so much of your power during a recession.
Consult with a Prosperity Economics Advisor
Are you looking to buy whole life insurance, save with Currence, or adopt other Prosperity Economics strategies? We would be more than happy to put you in touch with an advisor who is well-versed in the Prosperity Economics mindset. Contact us today to find your Prosperity Economics Advisor.