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How to Prepare for Recessions and Come Out on Top
Beyond Surviving
Media—TV, print, and online—is obsessed with the idea of an upcoming recession. They talk about it all the time.
And it’s easy to see why. On the face, recessions bring financial uncertainty that can have far-reaching consequences. Most people, especially the middle class, may experience reduced job security and higher prices for goods and services.
But there is something that mainstream media isn’t telling you. A recession or economic slowdown isn’t always terrible news, especially if you’re prepared and take a long-term view.
Yes, you read that right. Most recessions are nothing more than temporary slumps that offer growth opportunities. So rather than being scared off by news reports predicting a recession, it’s best to prepare and take advantage. Here are three easy ways to get started:
Build an emergency fund
If you’re worried about a recession looming, having an emergency fund that covers 3-6 months of your living expenses can be a real lifesaver. It can help cushion the blow if you lose your job or experience a drop in income during the phase. It also allows you to pay off unexpected obligations like medical bills without touching your savings.
And suppose you don’t end up needing to use your emergency fund. In that case, the reserves available will allow you to take advantage of potential investment opportunities that may arise at the end of a slowdown.
Diversify your investment portfolio
Certain investments perform better than others during a recession. For instance, defensive stocks like healthcare and consumer staples usually do better than cyclical stocks like technology and industrials. People with middle-class incomes can also consider putting a part of their savings in conservative investments like gold that might do well during a recession. So, spreading assets across different types, like stocks, commodities, bonds, and real estate, can lower your overall risk
Maintain a cash flow-positive position
During a recession, generating as much income as possible to stay financially strong is essential. One way to do this is by adding income streams that consistently yield positive cash flow. Ideally, you must create these income streams before a recession hits, but there may also be opportunities to do so during a recession.
A perfect example could be a property that brings in more money than they cost to own. These investments generate positive cash flow, meaning the rental income covers the mortgage and other expenses, resulting in extra cash in your pocket.
Wondering where to find such opportunities? One option is to look for distressed properties like foreclosures or short sales. These properties are often available at a lower cost and can be fixed up, rented out, or sold later for a profit. These purchases can also offset any losses you may have experienced during the recession.
3-step roadmap to come out stronger and wealthier
A recession can be a stressful time. But most recessions are usually a part of economic cycles and will eventually pass. The best mindset you can have is to stay calm and remain focused on making informed decisions. Here’s a roadmap to do just that:
First, do the basics right. Take a hard look at your budget and cut back on unnecessary expenses, specifically luxury items. Maybe cancel subscriptions you aren’t using. By being intentional about your spending and prioritising your needs over wants, you can stretch your budget further and help safeguard your finances.
Second, if you have extra funds, consider reviewing your investment portfolio. It wouldn’t be a bad idea to take advantage of the downturn by buying assets at discounted prices. Diversify your investments, spreading your money across various assets such as stocks, bonds, and real estate.
Third, seek professional financial advice when needed. An expert can create a plan to prepare for your financial future. And when you have a solid plan of action in place, you will feel more confident in your ability to navigate any challenge. That’s how you position yourself for long-term financial success.
The key to triumph in a recession is to stay focused on your long-term goals. And it’s all about preparation, you see.
“Someone’s sitting in the shade today because someone planted a tree a long time ago.” - Warren Buffett
Disclaimer:
This article is not financial advice. The circumstances of individuals may differ, and you must get financial advice where necessary. What follows here is our personal, subjective, biased opinion. It’s based on simple strategies that have helped us and our clients earn great income over the years.
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