November 28, 2022

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World Finance Reviews

4 Ways to Recession-Proof Your Money, According to a Financial Planner

  • Everyone I work with wants to know how to recession-proof their finances.
  • I recommend building up three to six months of emergency savings first, and paying off debt.
  • It’s also important to keep your money invested and get advanced job training while you can.

I’m a financial planner who also hosts a call-in financial talk show. Both my private clients and show callers want to know what they should be doing to prepare for a


recession

.

Going through a recession during your financial life is as inevitable as death and taxes. There is no economist who can predict the exact date that a recession will hit. I tell my clients and callers that with the right financial plan, you can recession-proof your dream retirement. Here are four things you should do.

1. Build up your savings

An emergency savings fund is a foundational building block for any good personal financial plan.  As a certified financial planner, I teach that a sufficient emergency savings fund is three to six months of your household expenses. Remember: These are your needs and not your wants. This cash reserve should be stored in a high-yield savings account. If you are currently living paycheck to paycheck, you are not ready to deal with a recession. Saving cash is not a sexy move to make with your money, but it is the first thing you must do.

Unexpected financial emergencies have a habit of coming at the worst of times. Sudden unemployment can have a devastating effect on your long-term financial goals. Liquidating retirement accounts and paying for personal expenses on credit cards can set back your financial goals for years. I advise my clients to prioritize building up their savings. The emergency savings fund can protect their retirement plans during a recession.    

2. Pay down debt

Surviving a recession requires disciplined budgeting. Now is the best time to pay down or pay off debt. This will give your budget the room and flexibility needed to meet the new demand caused by rising prices and decreasing wages.

During a recession, households must make many sacrifices. Paying down debt now will help keep you from destroying your


credit score

and going even deeper into debt when debt payments are missed in order to keep current with monthly essential payments.

3. Don’t exit the market

Our economy goes through seasons; we have cycles of ups and downs. During a recession, far too many people get spooked and sell off their investments too early. Investing comes with inherent risk, but needlessly liquidating your retirement or other investment account can damage your financial plan for years.

Tax penalties, locked-in losses, and the loss of capital gain in the long term are a few consequences of early retirement withdrawals. When you add up all the disadvantages of pulling out of the market early, it should overcome your fear of risk in the short term.   

If you are not nearing retirement, a down market is not a setback. You can take advantage of lower market prices if you are dollar-cost averaging, i.e. putting the same amount into the market at regular intervals. If you are near retirement, you should be contacting a financial planner to help you rebalance your portfolio to minimize your exposure to the coming recession.

4. Get or update advanced job training

Getting advanced job training before a recession is like putting on armor before a battle. As the economy slows down, the job market gets more competitive. Workers with a higher skill set have better odds of not being laid off and they are more likely to find new employment.  

I advise people concerned about the coming recession to seek out all opportunities for advanced training. Advanced training opportunities do not have to be expensive, they can be found at junior colleges, trade schools, and through low-cost certifications

The key to a recession-proof financial plan is avoiding the smoke and mirrors of the social media investing hype. Contact a financial planner and follow the recommendations no matter how boring they may seem.