Recession-Proof Your Finances: 5 Smart Moves to Make TODAY

Look, if it seems like everyone these days is talking about a recession, then you're definitely not alone. Headlines about a recession have really ramped up in the recent weeks, and even Google Trends shows an uptick of Google search results. The stock market is in correction territory, and while nobody really knows what's to come next, there are definitely some indicators that typically precede a recession that are starting to flash. Whether we're headed into a recession or not, it's always smart to get your money right and to make sure that you're prepared. After all, even if we don't head into a recession, a lot of these tips are always a good rule of thumb to kind of practice anyway, so this list is going to be helpful whether we're heading into one or not. So let's go ahead and dive in. Oh, and before I mention the list, I did want to point out that the average recession has only lasted about 11 months, again, on average, since the 70s. However, there is usually like a year or two after the recession where there's a slow recovery, so keep that in mind as far as a timeline when I talk about the topics ahead. All right, so let's kick it off with number five, and that is to get your habits in check, and most notably, I'm talking about spending. As most people know, the U.S. economy is essentially built on consumer spending, and a lot of that is credit card debt. So ask yourself, are you someone who buys a lot of stuff on credit cards? Do you kind of struggle to pay off credit cards monthly or on time, or do you even just buy a lot of unneeded or unessential items and goods? Well, all of these are bad habits during a true recession, and they can really exacerbate difficult financial times. Some recessions hit fast, but most hit slow and come on unexpectedly, and regardless of the timeframe, it can be really tough to adjust your habits, especially when there is so much going on around you and headlines everywhere, and you're trying to figure out what to do, and you might be panicking a little bit. So take the time now to rein in on your spending and build better money habits that you can carry through with you during a downturn. Be sure to pay attention to how much you normally spend, and try and cut that amount in half or even further if possible. And look, if no recession hits, you'll be left with better spending habits and hopefully more savings, so it's kind of a win-win anyway. But if a true recession really does hit, then you'll be better prepared going into that recession without needing to adjust your spending during it, which is huge. All right, so moving on to number four, don't panic sell when the stock market corrects, which we are in correction territory already. It's amazing how fast people sell when a correction hits, and it's kind of a panic sell mentality that really plagues the average investor. If you've ever heard of the phrase, when in doubt, zoom out, it's in reference to basically zooming out on the historical return of the stock market. So a small correction like what we're seeing right now or we'll definitely see in the future is minuscule in comparison to the rest of the chart. Now, remember, a correction is not a recession, but it's just something to keep in mind that over the long-term, stocks usually go up. If you panic sell, you could disrupt many of your long-term investments and actually lose money. It's really hard to beat the market and especially be right on timing. Your risk is higher if you hold individual company stocks, and I'm sure investors back in 2008, which they had dumped Lehman Brothers and Bear Stearns stock back in 07 before the crash of 08. But if you hold predominantly funds, which I've covered a lot on this channel, then your risk is diluted because there's quite a bit of balance of the portfolio rather than just holding one particular company. Again, markets go up and down, but they have a long history of recovery. So selling in a panic locks in losses while staying invested lets you ride the wave back up and see huge returns. So if you're investing for the long-term like retirement, this isn't the time to panic. In fact, you're probably better off actually contributing even more because recessions can be a great opportunity to buy stocks at a discount. Again, looking at it historically, markets always recover. And if you're still contributing to your retirement account or even your personal investment account, then you're actually buying stocks at a discount right now. And again, when in doubt, zoom out, look at the chart as a whole and ask yourself, where do you think the market will be in 5 to 10 years? I mean, after all, it's up 145.89% since 2020. So if you had invested in the last downturn, which was a super minor recession during COVID, you would be up 145 plus percent. So here's my recommendation for right now. It's to stay the course. If you can, keep contributing to your 401k and your retirement funds or even your personal investment fund. And if you have extra cash, considering investing more because again, market downturns create opportunities for long-term growth. But you should only do so if you first accomplish the next three tips. So number three is to boost your emergency fund even further. You should always have an emergency fund or safety net. You know, at a minimum, should have savings for at least six months of living expenses. Some people say three, but I like to go off six. If you don't even have that, then you really need to start building now. Remember what I said earlier, the average recession lasts 11 months. So really, you need to boost your emergency fund to double or triple six months of living expenses. Because again, while the recession may only last on average 11 months, the job market and recovery can be a lot slower and it can take a year or two or even longer depending on how severe the recession is. So if you happen to lose your job, you'll need those funds to cover your living expenses during those tough times. Okay, so here's what to do and it's really important. Savings rates right now are actually the highest they've been in several decades because interest rates are high. So look into a high interest savings account and move your money there and then transfer as much as you can on top of that to start establishing your six months of living expenses or even longer. Then you should set up a weekly transfer to this account to help it build automatically so you don't even have to think about it. $100 or more per week is definitely recommended, but even 20 bucks a week or somewhere in between will make a difference and you should seriously consider doing it. If layoffs really do start happening and unemployment creeps up, then cash is going to be king. So make sure your savings are ready to go. And that leads into number two, which is to stockpile savings. Now this may seem really similar to number three, but it isn't because you need to stockpile savings as well and there's a difference. These could be put into a CD or another high interest savings account, but it should be separate from your safety net. Your savings are essentially your first bucket to lean on in the event of a financial downturn and it adds an extra layer of security for you to draw on. Ideally, if you've taken the advice with number five and really toned down your spending, use all that saved money and put it there. Or you can move some of it into savings and some of it into investments, but the more of a cash safety net you can create now before possibly going into recession, the better off you're going to be. You can also look into side hustles to help bring in more cash in advance of a downturn. And these are great even if a recession doesn't hit because it's extra side income that you can apply elsewhere. I made an entire video outlining ideas for side hustles and various forms of income that are pretty easy to achieve, so I'll link it up above so you can go watch that next. But the number one most important thing to do heading into recession is to pay off bad debt or at least consolidate your debt so it's easier to manage. So it should be a top priority, the most important, do it now type of advice is, I mean, you should have done it yesterday, is to pay off bad debt. You really need to clear bad debt going into recession because if you don't pay off the bad debt now, it's going to be harder and harder to do during a recession. Recessions really hit hard and they make things really tough and these balances will be even harder to pay, especially if you happen to lose your job. The interest could then accrue and compound over time and make your financial situation very scary. So if you have a lot of credit card debt or high interest rate debt elsewhere, you definitely need to look at consolidation options and get it paid off as soon as possible. It's a good habit to have in general, not to overspend and not to carry bad debt with high interest, but especially heading into a recession, you do not want to keep any of this bad debt on your shoulders. So what do you guys think? Do you think we're headed for a recession right now or not? I mean, I'm generally curious what the community thinks and what your guys' sentiment is. So let me know in the comments below if you guys think we are headed for a recession or not. And remember, not all debt is bad debt. So if you're confused on what bad debt is or what you should target to pay off first, I definitely recommend watching this video. I did a full video on debt and it'll teach you a lot about what to prioritize. That's it for today's video. Thanks so much for watching and I'll definitely see you next time.