How do you prepare for a recession in order to feel comfortable in the event of financial doom?
You may hear the word recession and start freaking out. Don’t panic. A recession is temporary and if you are prepared for it you will weather the storm. It may take some adjustments, but you can do it. It is possible to prepare for a recession.
You will likely experience at least one recession in your lifetime. Why not prepare yourself to be in an offensive position for it rather than wait and see what happens? Of course, there is no way to predict everything that might happen, but there are definitely a few things you can do to prepare.
Why prepare for a recession?
I equate it to preparing for a natural disaster. You hope it never happens and you probably are not one hundred percent ready for every detail but at least you have bulked up on a few supplies and have somewhat of a plan…just in case. If you are prepared for a recession you will feel much more confident, secure, and stable resulting in a better overall feeling about your financial situation. Ultimately, this will create more balance in your life as you are not stressed about money.
How to prepare for a recession with these 5 tips
1. Check your mindset
It is important to keep a positive attitude in order to have good momentum while preparing for a recession. If you are in a panic you may make choices that will not benefit you.
Remind yourself that you are preparing. There is no need to frantically sell investments or stop paying extra on your debts at this point if you are doing so. You are being proactive by creating a situation that helps you feel comfortable “should” there be a recession.
As you continue through your process you may find yourself feeling many different emotions. Remember that you are doing what is best for you in order to prepare and keep moving forward. Keep your values in mind to be sure your decisions line up.
When your mindset is clear it is easier to breeze through anything. You will be inspired and ready to receive the opportunities that are in your path.
Below are some related articles about values and vision that may be helpful if you would like to explore.
2. Take inventory – are you prepared for a recession?
Setting up your plan without knowing where you are is like making cookies without checking if you have all of the ingredients. I mean, you can do it but it’s much easier when you know what you have.
The amount of time this step takes depends on how many transactions you have and whether you are currently keeping all of your records together. Whatever stage you are in I highly recommend taking your time and doing this as accurately as possible. The better your starting point, the better your plan.
You will need to gather the following:
- Monthly Income
- Monthly Expenses
- Savings
- Debts
I suggest writing everything down, entering it on a spreadsheet, or using an app to help you. It needs to be in a place where it is easy for you to see where adjustments can be made in order to reach your goals.
I also suggest not making the system too complicated. I find when it is too time-consuming, it is easy to give up.
Once you have a clear financial picture of where you are, you can start looking at the gaps that need to be filled in.
3. Bump up those savings – a major key in preparing for a recession
Generally, a 3-6 months savings to cover living expenses is good for an emergency fund. I recommend 6-12 months if you can swing it, especially if a recession might be in the near future. The extra few months can reduce your stress should you need to use it.
Take a look at what you can adjust in your spending in order to start bumping up that savings account. Remember to consider all of the aspects of your life that are important when making your adjustments. Don’t neglect an important aspect of your life or it may start to affect your mindset. It helps if you just reduce it a little bit here and there. It will add up and make a difference.
When you prepare for a recession you are evaluating and adjusting, not giving everything up. Keep that in mind.
4. Manage your debt
Typically, I suggest reducing your debt before accelerating your savings account. However, if a recession feels like it is on its way then bumping up your savings account will help you feel more secure.
This does not mean adding to your debt. Ideally, you can still continue to pay down your debt. But do NOT increase your debt. Once your savings are at a comfortable level, you can return to paying down your debt.
If your debt is not that high and you have a moderate amount of savings, such as 3-6 months, then consider paying down the debt first. Each situation is unique so find what works for you.
5. Monitor your progress
Keep track of your progress. I suggest a monthly check-in to see where you are. Compare your numbers from step 2 to your numbers at the end of each month. Are you on track? Do you need to make adjustments? Check-in with how you are feeling. Are you feeling good about your progress? Did any unexpected changes happen? How are you handling these?
If you are regularly checking in on your progress, you will be in better shape to straighten out any issues that may arise. It is much easier to handle issues in smaller doses. On a positive note, if everything is going well you will have something to cheer about and the motivation to carry on.
These are just the basics of what you can do to start preparing.
Below is a checklist to ensure you are prepared for a recession. Please download.
Recession Preparation Checklist
Thanks for reading!
Stay Balanced,
Jill