There’s a lot of talk of a recession. After living through the economic downturn of 2007 and 2008, while deep in debt, I’ve got a healthy respect for all that a slower economy brings. Here are the ways our family is preparing for any future recessions, and how you can too.
I’m not an economist, and I don’t get into political debates. Obviously, recessions will come and go with the passing of time. When they will strike is often discussed at length by the media. The fact is, eventually it will happen, so let’s try our best to be prepared.
Step 1: Get Out of Debt
In order to build a tower, you’ve got to have a strong foundation. That’s next to impossible to achieve if you owe money to others. Your income is your most powerful wealth building tool, and you’ll be handicapped if all the money you make is immediately going back out in the form of payments.
Think about how you’d feel if you lost your job. How much different would you feel if you had no payments? Yeah. Way different than if you had bills piling up on your kitchen table and collectors calling you night and day, threatening both you and your family.
Start Paying Off Debt Now, Not Later
The sooner you get out of debt, the sooner you’ll be able to build wealth. Start now, while times are good. That way when times are bad, you can be in a position of strength. Here are some ideas on what to cut first from your budget, in order to get started paying off debt.
Step 2: Live Frugally
Start learning how to live below your means. One of the things I like to do is research how my grandparents lived during the great depression. That’s one reason I started eating a lot potatoes.
Frugal doesn’t mean cheap necessarily. Make it a game, and have fun with it. Learn little tricks that will save you money around the house. We use cloth hand towels, instead of paper towels. Cook from scratch, go for walks, garden or learn to sew your own clothes. If you’re looking for more ideas check out my blog post highlighting 25 habits of frugal people.
Step 3: Save Money
This may seem like a no-brainer, but people just don’t do it. They don’t. When money is flowing in, and the economy is strong, most just assume it’ll be like that forever. It likely won’t be. One thing is constant in this world – change. Therefore, start first by saving an emergency fund of 3 to 6 months of household expenses.
Until you’ve saved your emergency fund, stop taking vacations, stop eating out, and stop shopping for non-essentials. Just STOP! As soon as you get your emergency fund in place, you can start living again. It’s a small price to pay for peace of mind, and a little buffer between you and tough times.
Keep your emergency fund in an account that isn’t overly easy to access, but not impossible to get to relatively quickly, like a money market account. It’s not an investment, it’s insurance against hard times. Try not to get hung up on the interest (or lack thereof) that it’s earning. To save money faster, consider these smart (and slightly extreme) home hacks that will help you save money.
Step 4: Stop Using Credit Cards
Yeah, that’s right. Even if you’re getting reward points. Credit card companies have spent billions of dollars figuring out how to mess us over. I imagine they have a break room where they just sit and laugh about how easy we are to dupe. You are not going to beat them.
When you play with snakes you get bitten. Cut them up, and hug your debit card. It’s your new best friend, because it’s just as secure as a credit card, and there’s no risk of spending money you don’t have. Being called and harassed by a stranger about a past due payment when you’re down in the dumps is not my idea of a “reward”. No thanks, I’ll pass. Give yourself points for avoiding the stink of the credit card industry.
Step 5: Get Multiple Income Streams
So, you’ve got your day job. What else are you doing with your free time? Watching TV most likely. Even if you have a steady job (like I do) it’s a great idea to think of some other ways you can bring in money.
Business owners are some of the wealthiest people in the world. One of the reasons is that those of us with a day job work for ONE person, place or thing, and business owners work for hundreds, thousands or millions of people. Think about it. They have more than one customer. If they lose one, oh well. As opposed to us, and if our company or boss decides to fire us, we are out of luck.
There’s is no shortage of FREE online content that helps teach ways to earn passive income online, or websites that help you sell products that you create at home. Consider Print One Demand (POD), blogging, Etsy, Affiliate Marketing, Amazon FBA, Uber, or simply delivering pizzas.
The point is to find ways to earn money from different sources. This will leave you less freaked out if you were to lose one of your jobs, or if you suddenly needed to boost your income. You could more easily pick up an extra shift or start designing and selling more products if you already had your foot in the door.
Step 6: Pay Off Your House Early
This might take a little time, but once you’ve completed steps 1 through 5, what else are you doing, huh? Might as well wrap up your recession proof plan with a little bow, by paying off your house, and getting rid of all your bills. Imagine if you only had to buy food, lights and water? Wouldn’t that be AWESOME. I think so. How easy could you ride out a recession if you were in this position. You’d probably barely even notice it.
Step 7: Consider a Recession an Opportunity
Once you’ve recession proofed your life, you might discover that you are eagerly awaiting a recession. That’s right. If you’ve been saving money, are out of debt, paid off your house, and have multiple income streams, this might be a time of excitement. For example, when the housing bubble burst back in 2008, many savvy real estate investors swooped in and bought a ton of real estate. “It’s all on SALE!”, they exclaimed.
How great would it be to be one of the few who cheered a recession as an opportunity, rather than a curse. Start preparing your financial situation for a recession now, so that you can be one of those people.
You got this!
