Money Advice (Preparing for Recession)

Let’s face it, the chances of a recession are growing each and every day into 2019. Morgan Stanley recently reported a 30% chance of a recession in 2020, so now is the time to start preparing and making smart financial moves.

Why do many experts believe a recession is coming?

There are several factors that area leading economist to warn against a possible recession. Those factors include the recent government shut down and looming trade wars with China. The year ended with the S&P 500 dropping by 13.5% in the 4^th quarter alone.

While it’s virtually impossible to perfectly predict a recession its not all doom and gloom in the economy. For instance, the U.S. Bureau of Labor reported 300k+ new jobs were created in December of 2018 which drove the un-employment rate to below 4%.

The point is, if you feel like a recession may be coming there are key things you can do starting today to better prepare your pocket book.

Go Cash Heavy

Some call this your emergency fund, some call this cash savings, but the point is you need cash stored up in a recession – no matter what you call it. Most financial planners recommend at least 3 – 6 months of living expenses in cash savings to help buffer against the unknowns in a recession like a potential job loss.

Another amazing benefit of going cash heavy is that when its time to enter back into investments they are typically cheaper. This goes for both stocks and real estate.

Also building up a line of credit that you can tap into wouldn’t be a bad idea. If you don’t have 3 – 6 months in savings and it may not be practical to establish before a recession, then a open line of credit can help you have access to cash during hard times. If you do not have 3-6 months of savings, then you should also check out the difference in long term vs. short term budget planning.

Get Debt Free

The truth is you should strive to be debt free both in and out of recessions. However if you are planning for a recession and you still have a mountain of debt, now is the best time to start cleaning that debt off your balance sheet.

Since tax refund season is coming up, this is a great opportunity to use your tax refund to help pay down some of your debt. This average last year was $2,800 and this can put a good dint in any high interest debt that may be looming over your head. To draw a simple comparison, Oprah earns this in just under 5 minutes!

Another good strategy is to start by paying off your least debt first. Dave Ramsey calls this the “Debt Snowball” and is a strategy that works well.

Reduce Personal Spending

It’s time to really dig deep into your own personal spending habits and look at the effects of your spending on cash flow. Knowing your budget will help you make smarter financial decision while planning for a possible recession.

After you know where your money is going there are some easy ways to start saving money immediately. Here are some of those practical ways:

• Cancel Cable / Netflix / Hulu
• Stop Eating Out
• Shop Weekly Grocery Ads

Being proactive is the key element to reducing personal spending. Don’t wait until it’s late to start planning, trying to re-organize in the middle of a recession is too late and not a good idea.

Get a Part Time Job

To point to getting a part time job is to both add income and while you are working, you will likely spend less money also.

When a potential recession is looming, another good strategy is to get a part time job to boost your household income and also create a hedge against a potential job loss or downsizing. With the advent of the internet several companies have emerged by creating opportunities for many people to earn not only a part time income, but even replace their current income.

If you have a car and a good driving record, then consider driving for Uber or GrubHub. You can earn good money by driving customers around for Uber or delivering food for GrubHub.

If driving isn’t your thing, then look at creating a Fiverr gig where you can do any number of tasks like writing content for blogs or even doing voice overs.

The point is with a little ingenuity you can add additional income to your household budget with minimal effort.

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