When the economy is booming, it’s easy to think that the good times will go on forever. But if the past has taught us anything it’s that there is always another downturn lurking just around the corner. Now is the perfect time to learn how to prepare for a recession.
How To Prepare for a Recession
It’s always nice to hope for the best, but you also need to plan for the worst. Living within your means and embracing frugality is a great start, and following the seven tips below will help you determine how to prepare for a recession.
Be A Superstar At The Office
When a recession hits, companies look to tighten up their expenses. That often means layoffs and reduced headcount. Wage increases may also be reduced or eliminated.
If you are concerned that an economic downturn could lead to layoffs at your company, now is the time to start demonstrating your value. Take on extra projects, learn new skills, and make sure your bosses are aware of how much you’re contributing to your team’s success. Earning certifications in your field is another way to stand out in the crowd.
There may come a time when layoffs become reality. If that happens, you want to be one of the people they can’t afford to lose. Going above and beyond now may help you keep your job in a recession.
Update Your Resume
Unemployment rates typically skyrocket during a recession. Now is the time to make sure your resume and LinkedIn profile is up to date.
If you do lose your job, you’ll have a head start on finding a new one. While everyone else is scrambling to update their resume, yours will be ready to go.
Build Up Your Emergency Fund
This is probably the most obvious tip on the list but it’s one that bears discussing.
According to a Bankrate study, 4 out of 10 Americans wouldn’t be able to afford an unexpected emergency of $1,000.
If you don’t have an emergency fund, now if the time to start one. You’ll want to keep your emergency funds somewhere they’ll be safe and also easy to access when you need them, like a high-yield savings account.
You won’t earn much in interest, but safety and accessibility are more important. Any interest you earn is just a bonus.
If you already have an emergency fund that’s great news! Even so, you should still consider increasing your cash reserves.
Stockpile The Essentials
An emergency fund is not just about cash in the bank. It’s also smart to stockpile essential foods and other items so you have them on hand if needed.
By supplementing your grocery purchases with items from your stockpile, you’ll be able to reduce your spending if your income takes a drastic hit.
Plus, you’ll have plenty of food and supplies on hand in case of either a quarantine or a run on goods at the supermarket. We’ve all seen the effect of the current pandemic on shelves pillaged of all toilet paper and canned goods.
So, what kind of items should you stockpile?
Skip fresh fruits and veggies that quickly go bad. Your stockpile should contain things that will last a while including:
- Dry goods like pasta, rice, beans, oatmeal, and cereal
- Canned fruits, vegetables, and beans
- Canned meats such as chicken, tuna, and salmon
- Baking supplies like flour, sugar, and spices
- Coffee and tea
- Cleaning supplies including sponges, soap, detergent, and disinfectant
- Toilet paper, paper towels, and napkins
Cut Your Expenses
When money is tight, you should look to cut back on your spending and tighten your budget. Trimming your expenses means you’ll need less money to cover your essential bills in a recession, and it also frees up extra cash that you can then add to your emergency fund.
Here are some suggestions:
Cook more meals at home. We’re a family of five and even a relatively cheap restaurant meal will cost us between $75 and $100. We can cook a whole week’s worth of meals at home for the same amount.
Carefully scrutinize recurring expenses. Do you still pay for a gym membership even though you haven’t worked out in six months? Do you really need both Netflix and Hulu? Ask yourself if you’re getting good value from your Costco membership or your Amazon Prime subscription. Trimming recurring expenses will save you money over and over again.
Start A Side Hustle
No matter how safe you feel in your day job, it’s always a good idea to diversify your income.
There are many side hustles you can start immediately to help supplement your income. You can sell items on eBay, babysit kids in the neighborhood, get paid to eat as a taste tester, become a tutor, or take online paid surveys.
Or you can go a step further by starting your own business. You can start your own blog, become a freelance writer, or open a Shopify store. Don’t expect to make it big overnight but someday your business could potentially replace the income from your day job.
Pay Down Your Debt
Debt is a problem even when the economy is going strong. But during a recession, your debt can become downright dangerous.
Every dollar you have to put toward your credit cards, student loans, or medical debts is one less you’ll have on hand to pay for essential expenses like food and rent.
If you’re in debt, concentrate on paying it down as quickly as possible. Make extra payments and do whatever you can to throw extra money at your debt problem.
Reducing your debt load will keep you in a much more stable position even if a recession does strike.
If you’re wondering how to prepare for a recession, these steps will get you in a good financial place to whether the next financial downturn, whether it be this year or a few years from now. As history shows us, we can be sure it’s coming; we just don’t know when.
Mike Collins is a hard-working dad from New Jersey who spends his nights and weekends building DadSense.co, a personal finance blog aimed at helping families take control of their finances. Mike is most happy when grilling burgers and drinking craft beer in the backyard with friends and family.