Hi friends!
It seems like a lot of people are starting to get laid off and we may be heading into a recession, if we aren’t already in one already. Today, I want to talk about 7 ways to prepare for a recession, and how to take action to be better with money. While it's impossible to predict exactly when a recession will happen, it's always a good idea to be prepared. Here are 7 steps you can take starting today.
1. Build up an emergency fund. Having a cash cushion can help you weather a recession and avoid going into debt. Aim to save enough to cover at least three to six months of living expenses.
Don’t just put all your money into a savings account. Instead, I like to put money into a high-yield savings account, like Ally, Wealthfront, or Marcus by Goldman Sachs, where they can give you around 2%-4% interest. This isn’t sponsored or anything. I just like these companies and use them myself. This is so much better than putting your savings into a traditional bank where you only get 0.01%.
2. Pay off debt. If you have high-interest debt, like credit card debt, it's a good idea to pay it off as soon as possible. This will free up more of your income to put towards saving and investing.
I don’t like paying off credit cards with the smallest balances first. Instead, I focus on paying off high-interest credit card debt as priority. This is called the Debt Avalanche Method and you actually save way more money this way.
You can also consider consolidating your debts. If you have multiple debts with different interest rates, you may be able to save money by consolidating them into a single loan with a lower interest rate. This can make it easier to manage your debts and pay them off more quickly.
You can also try negotiating with your creditors. If you're having trouble making your payments, reach out to your creditors and see if they can work with you to come up with a payment plan or modify the terms of your loan.
3. Diversify your investments. Don't put all your eggs in one basket. Consider spreading your investments across different asset classes, such as stocks, bonds, and real estate, to minimize risk. If you’re investing in the stock market, you can consider spreading your risk by investing in assets that track the S&P500, which are the top 500 companies in the United States. You can consider investing in a low cost index fund or exchange-traded fund. Personally, I like SPY and VOO, but invest in whatever you’re comfortable with.
4. Review your budget. Take a close look at your spending habits and see if there are any areas where you can cut back. This will give you more flexibility to save and invest during a recession.
You can try eating out less. Dining out can be a significant expense, especially if you do it frequently. Consider cooking at home more often and packing your own lunch to save money. Personally, I still cook 80% of my meals at home and meal prep each weekend. I’ve been doing this ever since college and I see myself still doing this in the future.
You can consider cutting back on subscriptions: Take a look at your monthly subscriptions, such as streaming services or magazines, and consider canceling any that you don't use frequently. Do you really need Netflix, Hulu, Disney+, Amazon Prime, and HBO Max? Probably not.
If you like shopping, you can shop around for better deals: When you need to make a purchase, take the time to shop around and compare prices to get the best deal. You may be able to save money by buying items on sale or using coupons. Don’t be someone who just buys things quickly. Instead, I make sure I use Chrome extensions like Rakuten and Honey every time I shop online. I also like to purposely leave items in my shopping cart and wait for companies to give me a 10% discount the next day.
Remember, the key to creating a budget is to be mindful of your spending habits and look for areas where you can cut back. Every little bit adds up, so don't be afraid to make small changes to your budget that can make a big difference in the long run.
Oh and if you have a neat budgeting tip, share it in the comments below to help each other out!
5. Learn new skills. Don't be someone who refuses to learn. Instead, take online courses or get additional education to make yourself more marketable in a downturn. When I started this channel, I learned a lot of new skills such as learning to use a camera, how to edit videos, and how to create content on Canva.
There are many websites that offer courses and resources for learning new skills. Here are a few options:
Coursera, edX, LinkedIn Learning, and Udemy: These platforms offer online courses and certificate programs from top universities and organizations around the world. You can learn everything from programming and data science to business and personal development.
Khan Academy: This non-profit website offers free online courses and resources in a variety of subjects, including math, science, and the arts. I actually used Khan Academy all the time with my students when I was still a public school teacher.
6. Be proactive about finding a job. If you're worried about losing your job during a recession, start looking for new opportunities before it happens. Network and update your resume to make yourself a more attractive candidate. Connect with people in your industry and try to make new connections. This can help you stay up-to-date on job opportunities and stay engaged in your field. You can use LinkedIn, Glassdoor, Indeed, Meetup, or social media in general to connect with other people. For me, I keep in touch with other content creators in different niches.
7. Stay on top of your finances. Use apps and websites like Mint, YNAB, or Personal Capital to track your spending and stay on top of your budget. I’ve been using Mint for many years and I love it! And no, this isn’t sponsored.
A personal finance app can be useful for a number of reasons. Some benefits include:
Tracking your spending: A personal finance app can help you track your spending, so you can see where your money is going and identify areas where you may be able to cut back.
Creating a budget: Many personal finance apps have budgeting tools that can help you set financial goals and track your progress towards them.
Paying bills: Some personal finance apps allow you to pay your bills directly through the app, which can make it easier to keep track of when payments are due and avoid late fees.
Managing your debts: Personal finance apps can also help you track your debts, such as credit card balances or student loans, so you can see how much you owe and create a plan to pay it off.
Monitoring your credit: Some personal finance apps offer credit monitoring services, which can alert you to any changes in your credit score and help you identify potential errors or issues that may be affecting your score.
Overall, a personal finance app can be a useful tool for managing your money, setting financial goals, and tracking your progress towards them.
I hope these 7 steps have been helpful for preparing for a recession. Remember, it's always better to be proactive and take control of your finances, rather than waiting for something to happen.
Have a wonderful day!
Steve 😀
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This article is strictly the opinion of the author and is to not be considered financial/investment advice. Call to Leap LLC and the author of this article does not claim to be a registered financial advisor (RIA) or financial advisor. Please visit our terms of service and privacy policy before reading this article.