How to Prepare for the Next Recession: 5 Tips from a Financial Specialist

Do you think a recession is coming soon? If so, how ready are you for it?

A financial specialist once told me that we cannot predict the future. At least with certainty, that is. We can reduce financial risk and weather the storm, though.

The current economic situation is challenging. We have high inflation and interest rates. We have disruption in the supply chain. These challenges point to a recession is on the horizon.

While a recession is never easy, there are steps you can take. You can prepare now and protect your financial future.

Tip 1: Create a Financial Safety Net

A financial safety net is a cushion of savings that help cover unexpected expenses. Or unexpected situations like losing your job. I recommend having at least 3 o 6 months of living expenses saved. Consider a high yield savings account for this.

If you neither have this amount saved not are able to, consider credit. You can leverage the amount of credit that you may already have or apply for new credit. Credit cards are best for this. There are many offers out there with 18 months free of interest. This beats a high interest unsecured loan. The downside of this option is you incur debt, of course. And this leads to our second tip.

Tip 2: Reduce your Debt

You know as well as I do that less debt is better during a recession. Between now and then, focus on your debt with the highest interest rate first.

Another strategy to consider is the snowball effect. Tackle the account with the lowest balance. Pay it off as fast as possible. Then roll that payment to the account with the second lowest balance. Pay it off as fast as possible. Then roll that payment to the next account, so on and so forth.

I recommend pouring as much money as possible into the account you want to pay off. Pay the minimum payment to all other accounts. Once you pay off one account, roll the payments to the next account. Continue to make minimum payments to the other accounts. Repeat this until you have paid off your debt.

And for the record, I know that not all debt is bad debt. If you businesses ventures and real estate, this debt brings in income. I am talking about your consumer debt. Your unsecured loans and personal credit cards. The debt that neither pays you (income) nor gives you tax benefits.

Tip 3: Invest in Yourself

Develop high income skills. I learn from Jason Capital the 3 high income skills: write, speak, and close. Learn these and you will never go out of work. Individuals and business are looking for people with these skills. And 9 times out of 10, you do not need experience in whatever field the business is in.

There are many free and paid resources in the market on this. You can take free courses on Udemy, Skillshare, YouTube, and more. You can go with the high-end programs such as Cardone University.

I recommend starting with books if you have no idea where to go for this. The plethora of options will likely overwhelm you. You also have to begin with yourself first. I mean your mindset. You must change the way you think about work and money. This means that there will be many times that you will not see results. You will not get positive feedback for your work and effort. You must start looking at the negative feedback as your lesson. Negative feedback is still feedback. Learn from it and adjust as needed.

Here's a list of books, I recommend:

Tip 4: Diversify your Income Streams

If you have one source of income, you are at peril. You are vulnerable to financial hardship. All it takes is for a disruption to that one source of income and that's it. You and your family will suffer.

Grant Cardone tells a story of when he lost a quarter his dad gave him. Grant's dad gave both him and his brother a quarter each. Grant and his brother were on the way to the market to buy something. At the time, a quarter was worth more that it is now. They would have been able to buy a lot at the local store. On the way to the store, Grant dropped his quarter down a manhole and was unable to retrieve it. Upon returning home, Grant told his dad what happened. His dad relied: "That's why you don't play with money, son." This devastated Grant even though he was already devastated for losing the quarter. Grant's grandfather witness what transpired between Grant and Grant's dad. Grant's grandfather told Grant: "The problem was not that you lost your quarter. The problem is that quarter was your only one." Moral of the story: you need more quarters. The same is true with your income source. You need more income sources to survive in today's world.

Consider starting a side hustle or investing in cash flowing assets, such as real estate. I do not recommend getting another job. This will rob you of time for yourself and your family. It will also rob you of energy. Instead become the best you can at your current job. Then look into side hustle opportunities related to your job.

For instance, let's say you work in an administrative position. Your regular day consists of:

Writing, handling, and sending correspondence
Creating, tracking, and modifying data on a spreadsheet
Booking appointments and scheduling meetings

You can market these services as a freelancer in platforms such as Fiverr and UpWork. Individuals and businesses will contract you to do tasks that you are already doing. You get paid for this gigs or jobs.

Here's another example. Let's say you spend time scrolling through social media. You know how to comment and engage on at least one platform. You can apply to manage social media accounts for individuals and or businesses. You can also apply to review apps. Or other writing jobs.

Here are the sources of income I recommend:

Conclusion

Follow this tips to reduce your financial risk. This way you will prepare for the next recession. Sooner or later it will come. And remember, the best time to start planning your financial future was 10 years. The second best time is right now.

As you embark on your journey, I will leave you with this:

Create your financial statement first and then a budget. You financial statement could look like this:

Income - primary source, i.e., your day-to-day job
Work - side hustles or other
Assets - real estate, dividends, etc.
Expenses
Cash flow

Then work on your budget to support your financial statement based on your goal. Here are some tips to help with your budget.

Keep your budget simple. Choose the amount of money you will set aside for expenses and investments based on your income. Grants always talks about paying yourself the same amount of money you pay in taxes. For example, if you pay 30% in taxes, you should pay yourself 30%. you live off the remaining 40%.
Live below your means. Don't spend more money that you earn. this includes using credit cards. If you cannot pay it off by the end of the month, don't buy it.
Make sacrifices. This means eating out less, cancelling subscriptions, etc. Stop the leak of money. Here are two question you can ask yourself: (1) does it pay me? or (2) can I write it off my taxes? If the answers are no, you should get rid of it.

Action Plan

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Disclaimer

I wrote this article for educational and informational purposes only. I am not a financial advisor, I share ideas and recommendations based on my experience.

I used artificial intelligence in writing this post. I used it for content idea generation and research. I validated the information I provided in this post.

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