How to prepare for a recession? There is a million articless out there with a laundry list of generic tips that basically boil down to this:
- pay down your credit card (reduce debt)
- buy the budget shampoo (save money)
- have emergency fund / don’t get fired (doh, really)
That super generic stuff is not all that helpful. So, it was fun reading a more specific article by Ann Kaplan on CNBC today. Still a laundry list, but more specific and detailed.
I went through it, and sliced and diced a bit, and to me it seems she wants you to focus on these 5 areas … but read on below to see what it’s really about.
- preserve cash & boost income: boost your emergency funds to 12-24 months (and do this before investing). build more income streams. sell your old crap on ebay. keep your cash instead of paying off low-interest mortgages.
- manage your debt: you want less high-interest debt, like credit cards, but want to retain your cards and a good credit score, to keep your options open. re-negotiate mortgages now before it gets even more expensive
- save: buy bulk, buy frozen (yes, really, read the article), buy generic (yup, here is the budget shampoo). drive less, save fuel.
- invest: invest in “recession-proof” industries. (not all is gold that shines though and vice versa. invest in companies that produce ~iphones~ (just kidding)—what the article says is “tangible things”. Look for stocks that tend to go up when the rest of your stocks go down, and the other way. “negative correlations”
- job: if you’re planning to change careers, might as well go for something, again, recession proof. (I like how the article put it: “jobs that “keep society running”). either way: learn and level up—not like britain—your skills, get degrees, certificates etc.
So, that’s a lot of things to consider. But when you think about it is really about one thing:
With that in mind we can slice and dice that advice from the article in a different way. Assume you will be fired somewhen along the recession. What you’re really after is this:
Buy yourself time
Give yourself enough time to find something new. That means:
- have cash on hand to pay the bills (“emergency fund”). : reducing expenses helps you last longer (buy budget shampoo, manage debt, sell old crap)
- if you’re running out of time, make sure you can borrow (credit score)
Shorten the time
Just because you can roast your savings slowly like a piglet for 2 years doesn’t mean that you should. ~Become a vegan instead.~ (jk) So, what can you do to shorten that income-free time? Exactly: upskill, to increase your chances of getting hired. (Being more valuable might also make it less likely to get fired in the first place.)
Also note that the economy and job market may not be doing great just because the recession is “over”. Economists and stock market suits have their own definition of the end.
Prepare for the after
As Kaplan says in that article:
Don’t panic — recessions don’t last forever.
So, get ready to invest into the upswing—after taking care that you don’t crash and burn during the recession.
But be smarter next time: if you have to/ want to change careers, at least make sure that the next job is safer, so opt for something “recession proof”.
The why matters
Focus on the why—taking the risk out of losing income—matters because it helps you and me think through our own situations. Those laundry lists never apply all that well to your situation or mine. (Starting with the fact that they’re mostly written for a US audience.)
So, see what you can do for you, to buy yourself time, keep the time short, and then bounce back from the recession faster than Boris Johnson from his resignation today.
In the meantime, have a look at the article—as mentioned it’s a good laundry list, and has some nice details—like the frozen food bit.