A recession often looks different for every person depending on a number of factors:
- Savings available in an emergency fund in case of job loss or other financial hardship
- Job security and reliability of consistent monthly income
- Health status and your ability to work and manage ongoing healthcare expenses
- Monthly spending and expenses vary widely from person to person and family to family
- Amount of debt and monthly payments
While personal situations and expenses vary, the steps to recession proof your finances remain the same. My story is different than most, and your story may be equally challenging and unique.
My husband passed away 12 years ago. My son was just 3 years old and I was a stay-at-home mom. I was completely financially unprepared. I had to learn how to earn money, then I had to learn how to manage that money.
It was a very scary, overwhelming and stressful period of my life. But it taught me financial resilience. I was so financially insecure that I swore I would never in my life find myself in a similar position again. No amount of financial emergency would leave me so vulnerable again.
Which is why a recession now feels more like an opportunity to me than a financial emergency.
Here are the steps I took to build recession proof financial security:
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Contents and Quick Links
Track all income and spending – to the penny
Understanding your monthly expenses, and your spending habits, is the first step to controlling your money and achieving your financial goals.
If you don’t know where you are now, you can’t find your path to move forward to where you want to go.
Learn more: How to Track Your Monthly Expenses
Create and stick to a budget
Once I understood my essential expenses, I knew how much money I absolutely had to have each month. With this information I created a budget. This was my guide that I could follow and refer to.
It protected me from debt.
With a budget I knew how much I could spend on any given expense category, be it food, gas and travel expenses, or housing. With anything left over, I had a plan for where that money needed to go. This prevented me from spending money on non-essentials during a time when I didn’t have that luxury, even if a positive bank account balance taunted otherwise.
Learn more: How To Create a Budget You Can Stick To
Set financial goals
My immediate goals were to tread financial water by lowering my expenses, then earn more money so that I could save up an emergency fund. With these goals strong in my mind, I was able to stay focused, on track and motivated to push for progress.
Learn more: 3 Steps to Achieve Your Financial Goals
Earn more income
The key to financial security for me was income. Remaining a stay-at-home mom simply wasn’t an option anymore and so I needed to start working. With a long-term financial goal of financial security and comfort, entry-level work wasn’t going to cut it. And so I needed to map out a lucrative career path and the steps to achieve it.
Save an emergency fund
Once I started earning more money, the most important and impactful financial move I could make was to save up an emergency fund.
Unfortunately, many American’s a woefully unprepared for a looming recession. While the recommended emergency fund should cover 3 to 6 months of monthly expenses, during a recession, you may need even more to feel secure and able to handle a job loss or other change. However, according to Business Insider, the median American is nowhere close to achieving this.
Saving money became an obsession for me. I could honestly feel the whisper of winter is coming trickling icily down my spine. My emergency fund was going to save me from a horribly long and dark winter.
If anyone wanted to give me or my son a gift, be it birthday or holiday, or just because, I always made it very clear that I wanted cash or gift cards for food so that I wouldn’t have to spend money. I asked for discounts with absolutely no shame.
I remember my iPhone broke and needed to be repaired. The poor GeekSquad tech told me how much it would cost and I started crying in the middle of the apple store. The thing is, I actually had the money, but I was so worried that it would impact my ability to save that it felt devastating at the time.
That’s how important it was to me. And if you don’t have an adequate emergency fund, that’s how important it should be to you, too.
Invest and build wealth
Once I had a full year’s worth of living expenses saved, it was time to look further into my financial future and begin investing. Just as I saved for an emergency fund, I then saved just as aggressively to my retirement account and a separate investment savings account.
I used my investment funds to partner with another investor and purchase a rental property. We fixed it up and rented it out, then I refinanced and used those funds to pay off my partner. I now own the duplex independently.
The importance of financial security
The decisions I made over the last 12 years have provided a level of financial security that will resist most any financial emergency. Even a deep and long economic recession. I can look back now and feel grateful for that period of financial insecurity, it taught me the skills to weather any future financial storm.
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