How to Protect Yourself from a Recession
Alix Tucker, CEO of Finance with Alix
As I sat down to write this article, I couldn't help but remember the financial crash of 2008. The world was reeling from the devastating effects of the recession, and many people were left to pick up the pieces of their shattered financial dreams.
Fast forward to today, and it seems we're on the brink of yet another catastrophic economic downturn. According to a recent article on Fortune, it seems like a 2023 recession is coming. Inflation is increasing at its fastest in more than 40 years, and we’re seeing layoffs in tech and finance spread to other sectors.
Because there’s so much uncertainty, it's natural to worry about how you’re going to protect yourself and your loved ones from the financial fallout. Interest rates are up, and despite the Federal Reserve's best efforts, inflation stays high.
So what can you do to keep your finances safe and sound when things are looking rough? Let’s go over a couple of ways you can protect yourself from a recession.
Increase Emergency Savings from 6 Months to 12 Months
Conventional wisdom has long said that having six months' worth of expenses saved up in an emergency fund is enough to weather most financial storms. Well, with the way things are going, it might be a good idea to bump that up a bit. Think about aiming for 12 months' worth of expenses stashed away, just to be on the safe side.
You’ll have to do so by funneling extra money into your savings account. This means more regular reviews of your budget, potentially automating deposits into your savings account and looking for ways to cut down on spending. That fancy dinner you’ve got planned? It might be time to get creative and cook a three-course meal instead.
Doubling your emergency savings might seem like a lot, but it's all about giving ourselves a much-needed cushion to fall back on in case the recession hits harder than expected. With a bigger safety net, we can feel more secure knowing we can handle whatever financial situations life might put us in.
Stock Up on Cash, Gold, and Silver
While it's considered a rule of thumb to have a diversified investment portfolio, it's also smart to have a portion of your wealth in tangible assets like cash, gold, and silver. These serve as a hedge against economic uncertainty and can provide a sense of stability. In the face of rising inflation, precious metals like gold and silver have historically held their value, making them a sensible addition to your financial collection.
If you’ve never bought gold and silver before, you’ll be glad to know many banks offer the option to purchase them. They make it super easy for you to add them to your financial safety net - all you have to do is give your bank a call or pop in for a visit, and they'll be more than happy to guide you through the process.
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Pay Down Debt
Debt can be a huge burden during a recession, as interest rates tend to rise and make monthly payments more challenging to manage. One of the best moves you can make right now is to prioritize paying down high-interest debt, like credit card balances, to avoid getting caught in a debt spiral. You might even want to consider refinancing your mortgage or student loans for more favorable rates if possible.
Of course, while you won’t be paying off everything overnight, having a plan in place can really make a difference.
Cut Back on Non-Critical Expenses
Sometimes it’s the little things that make the biggest difference, especially when it comes to our monthly spending. It’s time to take a good, hard look at where your money goes each month and identify areas where you can cut back.
Do you really need that daily $7 latte (that’s $49 a week!) from your favorite coffee shop, or could you brew your own at home? What about those subscriptions you barely use, or can you delay that dream vacation until the economy stabilizes? Trimming non-essential expenses will prepare you to face a recession with a healthier bank account.
Start a Side Hustle to Bring in Additional Income
As the saying goes, "Don't put all your eggs in one basket," and that applies to your sources of income too. When the economy goes down, having a side gig can come in handy.
A side hustle could be anything from freelancing in your field of expertise, starting an online store, or even turning a hobby into a money-making venture. Not only will this additional income help you offset what the recession may bring, but it may also lead to new opportunities and financial growth even after things go back to normal.
Prepare to Invest in Stocks and Real Estate
Recessions can actually be a golden opportunity for those who are ready to invest. As stock prices and real estate values fall, savvy investors can swoop in and purchase them at a steep discount. So, while everyone else is panicking, you could be setting yourself up for success down the road.
Now, I'm not saying you should dive in without doing your homework first. Take some time to research potential investments, set aside some funds, and develop a solid investment strategy. That way, when the time is right, you'll be armed with the knowledge and resources you need to make the most of the situation. And who knows, you might just come out of this recession with a smile on your face and a fatter wallet.
Getting Recession Ready: Final Thoughts
While we can't control the economy or prevent a recession, we can take charge of our financial well-being and make smart moves to stay afloat. By following these steps, you'll not only protect yourself from potential hardships but also set the stage for future success. It's all about staying proactive, adaptable, and ready to seize opportunities when they come your way. Start recession-proofing today!
If you're looking for more advice and insights on navigating the recession, be sure to let us know in the comments below!