No one wants to live in fear, but the reality is: what goes up, must come down.
Growing up during “The Great Recession” in Detroit, the Motor City, I remember what it was like watching all my friends’ parents get laid off and their savings turned to nothing. The recession hit Detroit hard when all the car companies were getting bailed out by the government. Not-so-fun fact: if the government bails out a company, their stock price and 401ks are now worth $0. Multiply that by the over one million people in our city, and a decade later, Detroit was still in recovery.
It became very clear to me how important it was to prepare one’s self for the most unforeseen circumstances. No one expected Ford or General Motors to fail. But what goes up, must come down. Times change. The best thing you can do for yourself and your family is to be prepared. Know that in your lifetime, it will happen.
Here are my 6 tips to help prepare for a potential recession:
1. Build Up That Savings
By far, this is the most important step. Standard financial advice says you should have six months worth of living expenses saved at any given time, and that’s in a normal economy, so this should definitely be your first priority in preparing for a recession. If six months sounds overwhelming, start with a goal of $500. When you reach that, set a goal of $1000, etc. It feels less daunting when you break it into smaller goals.
For more information on how to calculate what your emergency fund should be, Nerd Wallet does a great job of breaking it down.
One way to bolster your savings more quickly is to use bank accounts with higher interest rates. These are often online banks (Ally or Capital One 360 to name a few) rather than brick-and-mortar, but smaller credit unions sometimes have these options too.
For me, it’s easier if someone else does the saving for me. I like Digit. It’s an app that takes money out of your checking account daily, so you don’t even notice it coming out. It will take anywhere from $3 to $25 out each day based on the goals you set in the app. Then you can log into the app and see your savings. Anytime you want it to withdraw from Digit and put it in a bank account, you can do so.
2. Review Your Investments
Are you still comfortable with the level of risk you’re taking? How far out is your retirement? Are you differentiating your investments? Don’t put all your investments in one company or even one fund. Set up a meeting with a financial planner to discuss risk, spending, differentiation, and saving options.
Haven’t started investing yet? It can be overwhelming. Start small! Websites like Fundrise allow you to start real estate investing with as little as $500. Then you can add to it in increments as low as $100. Remember, something is better than nothing, and time is your biggest ally when it comes to investing. Starting in your 20s rather than your 30s makes a huge difference. The SEC (a U.S. Government organization) has created a calculator to teach this concept. It can be found here.
3. Make a Plan to Get Out of Debt
Step one to getting out of debt is deciding when. Collect all the data about your debt, calculate the total, and then choose a date that it will be paid off by. And stick to it! Make a plan. It’s like a diet…a rough plan isn’t a plan. Be specific. Write it down. Have a friend hold you accountable. Dave Ramsey, the infamous financial planning expert, has processes for this if you need a program to follow.
4. Decrease Your Dependency Rate
Indiana-based financial adviser, Peter Dunn, professes the importance of decreasing our financial dependency. If you regularly spend 95% of your income (or $.95 of every dollar), your dependency rate is 95%. Your goal should be to decrease your dependency rate over time, even if your income goes up. Not only will it prevent stress in a recession, but it will also help with retirement. Set a goal, and remember: progress over perfection. If you’re at 90%, make your first goal 80%, adding 10% of your income to a savings account each month. This will protect you in times of unforeseen circumstances.
When it comes to a potential recession, the best thing you can do for yourself and your family is be prepared.
5. Have Your Resumé Up-To-Date and Posted on LinkedIn
It doesn’t matter how prepared you are or how stable you think your job is. It’s always a good idea to have your resumé up-to-date. No job is recession-proof. Make sure to clearly and concisely highlight your achievements, job titles, and skill sets. Solicit recommendations from your boss (if possible) or coworkers. Post them on your LinkedIn. You may want to even post your resumé on job search sites in order to keep your options open. Consider taking a course or upgrading your skills if you have the time. It could help you keep your job or score a new one.
Additionally, make sure your social media platforms are job-search quality. Potential employers will look at anything they can find on new potential employees: Facebook, Instagram, etc. Make sure what’s online represents the “you” that you want them to see. It’s so much easier (and less stressful) to focus on these things when you’re not in crisis mode. You’ll be glad you did.
6. Start Networking Now
It’s never too late to start building that contact list. Remember: you will need connections later. Have business cards made and always carry them with you. When you meet someone new that you could connect with professionally in the future, exchange contact information and send them a follow-up text or email a week or two later. Something simple like, “It was so nice meeting you, Jessica! Let’s get coffee sometime soon! Keep in touch!” It opens the door for future communication and helps them remember you.
Recession or not, following these tips will be beneficial. There’s no such thing as too many options, too many investments, too much freedom, too many contacts. So why not position yourself in the best possible situation? Your body and your family with thank you later.
Katey Maddux is the owner of Millennial Accounting, whose mission is to serve, inspire, educate and problem-solve. They work with small businesses to help them organize their finances and produce accurate accounting statements. Find out more at www.maquickbooks.com.
Disclaimer: I don’t get paid by any of the companies I am recommending. They are simply personally-tested recommendations to help you succeed.
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