How to be prepared for a recession

The world has been going mad the last few weeks due to the Coronavirus pandemic.  It’s making a huge impact on the stock market which has people panicking. It’s also affecting thousands of businesses as people are staying home which means less money is being spent.  All of these combined with several other factors could very well be leading us to a recession. Are you prepared for the next recession? Here are some ways to set you up for the least amount of impact as a difficult economic time likely approaches.

Start living as if a recession is already here

Cut way back on expenses if you haven’t already.  Don’t do any unnecessary spending. Live as if you already have less income coming in.  This means less shopping, entertainment, and eating out.

Start building up savings

If you and/or your spouse lost your job today, how long would you be able to survive before having to take drastic measures to make sure your family continues to have a roof over their head and food to eat?  The goal is to have 3-6 months worth of expenses saved up for this type of situation. If you don’t have much saved, now is the time to do so.  

Continue to pay off debt as quickly as possible

If you become unemployed you will want to have the least amount of debt possible.  The less monthly payments you have to make during this stressful time the better. I usually advise that you throw any extra money at debt until it’s paid off.  However, if you don’t have much money in savings you will want to do both simultaneously. Perhaps take any extra funds and use half to pay off debt and put the other half into savings.

Make adjustments to retirement accounts only if you are close to retirement

If you are nowhere near retirement and you’re seeing your 401K or Roth IRA numbers decreasing drastically, leave them alone!  It will all bounce back eventually. It might take years, but you won’t be needing the money in the short term anyway. However, if you are close to retirement it may be wise to make adjustments to how your money is invested.  Consult with your financial advisor to figure out the best low-risk options for your retirement funds.

A recession can be a scary and stressful time of uncertainty.  However, if you plan ahead and prepare for it in advance it will not leave you in a vulnerable situation.  In fact, those who are fully prepared will take advantage of a recession by investing in stocks and real estate while prices are at an all time low.  Make it your goal to be well prepared and you will come out of the next recession better than most!