Even though I don’t think any of us can accurately predict the future or control it, there are things we can do to help Recession-proof our finances in the event a Recession does happen. The thing about Recessions that really negatively impacts families isn’t an increase in interest rates (even though that sucks too). It’s job loss. So you need to go into prepping with that in mind – what would your life look like if you or your spouse lost their job and struggled to find a new one?
1. Emergency Fund
There’s literally no point in going further in this post if you don’t yet have a solid Emergency Fund in place. I know that sounds harsh but there’s a reason this is number one. It’s the MOST IMPORTANT one! You need to have an Emergency Fund of at least one month’s worth of essential expenses. If you don’t yet have that in place, make it your priority. Ideally, you’d have a six-month emergency fund but that may not be possible for you right now and that’s okay. Just focus on setting up a one-month emergency fund for now.
2. Pay Off Debt
Another key to Recession proofing your finances is to pay off as much debt as possible. I’m not talking about paying off the mortgage. I’m talking about paying off the credit cards, student loans, car loans, boat loans, personal loans, etc. You need to make a plan and make a solid dent in your debt burden. If you want that one-month Emergency Fund to go further you’re going to need to free yourself from the chains of debt. Debt literally eats your income. Read that again. If you want to get ahead financially or prep for a possible Recession you need to free up the income you’re currently earning so it can work harder for your future self.
3. Avoid Frivolous Spending
I know it’s no fun. It stinks having to scrap the things you enjoy but remember this is just a season. If you aren’t prepared for a possible economic downturn and the economy does turn downward you’re going to be hurting. I know that’s harsh to hear but it’s true. You need to prepare your finances and get good with money. You need to stop buying things that don’t matter – until you’ve at least gotten your one-month emergency fund set up. This doesn’t mean you can’t ever do anything fun. It just means you need to get real with your current financial situation and take action. No one else is going to do it for you. It’s up to you my dear friend.
4. Make a Plan and Execute It
There’s no point in thinking about doing something if you don’t actually do it. My point in writing this post isn’t to make you feel overwhelmed or to shame you. It’s to hopefully motivate you to take action. As Tony Robbins says,”Execution trumps knowledge every day of the week.” If you want to get ahead financially or Recession proof your finances you’re going to have to make a plan and execute it.
- Save up one month’s worth of essential expenses.
- Pay off credit cards.
- Save up another month’s worth of essential expenses bringing your Emergency Fund to two-months worth.
- Pay off student loans.
- Save up another month’s worth of essential expenses bringing your Emergency Fund to three-months worth.
- Pay off personal loan(s).
- Build up another month’s worth of essential expenses to bring your Emergency Fund up to four months.
- Pay off car loan(s).
- Stack another month of living expenses in your Emergency Fund. Now you’re at five months!
- Pay off other loans you may have (wedding, boat, RV, etc.) or consider selling those assets to get rid of the loan altogether.
- Stack your last month of living expenses! You did it! You’ve got a six-month Emergency Fund!
I know that all sounds super simplistic but the reality is you can totally do this! Take it one step at a time. You can free yourself from financial craziness and Recession proof your finances. It just takes one step at a time. You make the plan. You execute the plan.
5. Keep Going!
Again, I know this all seems “high in the sky” but the reality is if my family could become 100% debt-free on less than $50,000 a year you can too! You just have to be willing to make the changes necessary. Take it one step at a time. Say no to drinks after work. Say yes to a potluck instead of meeting at a restaurant. Make the coffee at home. Bring your lunch to work so you don’t spend money while making money. Buy sparkling water instead of beer. Eat out only once a month instead of once a week. Buy frozen pizzas instead of ordering pizzas every Friday.
Simple changes will net you amazing returns. Slow and steady win the race. You can do this.
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