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A Simple Question
This past week, my fiancƩ posed a question while we were working from home.
āHas your company had any talks of dealing with a potential recession?ā
āNo, has yours?ā
āYes, it was brought up in a meeting and executives are discussing preparing for potential layoffs. They are signaling warning bells to begin networking, tap into other potential industries, and prepare for the worst.ā
Itās a scary question and I didnāt realize how itās a question Iāve been avoiding myself by pretending everything is fine. Itās no surprise that weāre dealing with short supply, rising housing markets, and high inflation. As a result, a majority of our workplaces (depending on where you work) may be shaken.
Itās difficult to think about, but do you have a plan in place?
How to Prepare
Here are steps many financial experts agree upon:
Build on your emergency fund
Minimize your lifestyle
Prioritize debt repayment
Emergency Fund Cushioning
No brainer here. The hard times require more of your liquid assets. To prepare for my wedding (and now the thought of a recession), Iāve increased my monthly savings amount to 85% of left over monthly cash and investing the other 15% throughout this time. This may change as my situation changes, but I want to ensure that I have extra emergency funds at these times.
No, your Amazon impulse purchase doesnāt count as āemergency.ā Iām talking about the requirements for living - a roof over your head, food, electricity, and water.
Be sure to increase your savings. I recommend continuing to invest if possible but I recommend taking a look at your own financial situation first.
Minimize Your Life
As Americans, we want to live the biggest lives possible. Iām talking the expensive clothes, houses, cars, and dinners. In a recession on an average American salary, we canāt afford to live this way. In order to beat through the recession, we need to cut back.
Have you picked up an extra streaming service? Is the gym a necessary expense if food is a priority? Is the food worth it for one meal? Be prepared to cut back on any means possible and seek other forms of entertainment or income.
Prioritize Debt Repayment
This is the time to begin thinking about repaying your debt if youāre truly concerned about a recession. Nobody wants to be stuck without income and in debt. Be sure to tackle your debt at this time and stay on top of your immediate finances.
In conduction these three steps will help ease the burden of a recession (but you will most definitely feel it in your daily life).
As I leave you, be sure to not sell your portfolio unless itās a critical situation. It may be tempting to take a loss in this moment for cash on hand but these should be long-term investments.
A critical situation is defined here as a life or death scenario with the basic necessities as mentioned above. Iām continuing to buy the dip. Hoping for the best and preparing for the worst.
Stay safe,
JT