Here are 5 ways to prove your finances won’t decline right now, according to the CFP

whether or not

economic recession

What happens is beyond your control – so obsessing over macroeconomic trends or trying to predict what will happen next in the U.S. or global economy is not a good use of your time or energy.

That doesn’t mean you shouldn’t care about these things. But if you want to weather a recession, then you need to focus on the things you can directly impact. When it comes to your money, the most immediate thing you have the most control over is your cash flow.

1. Manage your spending wisely, starting now

Cash flow is money in and money out. The “going out” part is probably the easiest and quickest thing to impact.

Try to build a worst-case budget forward You find yourself in the worst possible situation. Take a look at your current expenses and see what you can cut right away. This is likely to be entertainment, restaurants, luxury purchases and other shopping.

And then dig a little deeper: what you might not be able to eliminate entirely, but can easily spend less on? This could be groceries, household items, or things like transportation or fitness (for example, if you switched from driving to biking, or swapping out your exclusive and expensive gym membership for a cheaper option).

If you’re nervous about a recession, this stripped-down budget might be the first thing you deploy.Remember that recessions are usually officially announced back They’ve already started (even a year after they happened, like the two-month recession in March and April 2020…a recession won’t be declared until July 2021!).

Given this, it’s worth testing your worst-case spending plan before you’re forced to do so. If you’re spending less now, this also frees up more cash flow that you can use to save and invest — another great way to prevent your personal finances from slipping into recession.

2. Increase your income, then your savings, while you can

Evaluating your spending to see where you can give up or temporarily stop investing in your budget is a critical step in managing cash flow. But don’t forget that you can also exert some control over the inflow of money.

You can increase your income in many ways. The right path for you depends on your situation, skills and interests, but here are some suggestions for you to consider:

  • Request to work overtime or overtime
  • Look for part-time positions that you can fill in addition to your current obligations
  • Explore freelancing or consulting
  • Take on more responsibilities or projects at work and use that as leverage to help negotiate higher wages (or consider taking your skills elsewhere while the company is still hiring)
  • Start your own business – but eliminate some of the risk by a) doing so without borrowing money, b) keeping your current job while you start, or c) both!

Whether you’re increasing your income or reducing your expenses (or both), you’ll get extra cash flow every month. You can use this extra money to:

  • Boost your emergency fund, especially if you’re worried about a recession and possible job loss
  • Increase contributions to retirement accounts to build long-term financial stability
  • Add to your portfolio in retirement; for example, you can open and fund a brokerage account (or increase your monthly investment amount if you already have a portfolio other than retirement savings)

3. Keep investing

Dollar cost averaging is a great strategy used by long-term investors when putting money into the market. When you average by dollar cost, you’re putting in the same amount on a regular, predictable schedule no matter what.

To prevent your finances (and portfolio) from falling into recession, you need to keep investing even when the market is falling. In fact, especially When the market falls!

When you stop contributing every time you feel uncertain about the economic future, you’re not actually averaging dollar costs. Instead, you’re falling victim to one of the biggest mistakes investors can make: buying high.

If you only invest when the market is up, when the time is right, and everyone feels confident, you’ll be buying at higher and higher prices. And if you don’t keep investing when the market is down, you’ll never take advantage of the lower prices the market has to offer.

Putting your hard-earned cash into the stock market can feel scary when the value of your investments declines, but wise long-term investors know that corrections, bear markets, and recessions are actually opportunities to buy assets at lower prices.

4. Review your skills and update them as needed

Most people worry about recessions because they increase your risk of losing your job, thereby increasing your much-needed income. You can help you weather a recession by ensuring that even in a tight labor market, you remain a vital resource.

Look at your skills and knowledge and compare them to the current market to see where you can meet demand, or see what you might need to catch up to to stay relevant for open positions.

This also applies if you are self-employed. Do you need to know the latest trends in your field? Are there any training or educational opportunities available, or are there certain clients or projects you can take on right now to expand your experience?

As with everything else on this list, now is the time to act—before the economy cools dramatically and companies stop hiring new employees. If you can increase your value now, it will help you maintain your current position while the business weathers a potential recessionary storm.

5. Avoid hasty (or expensive!) financial decisions

Now is not the time to jump wildly into the unknown with your money or take uncalculated, unnecessary risks.

This is especially true for any financial decision that will eat up a lot of cash flow and limit your financial decisions


or set very high fixed costs in the budget.

If you can put off very big financial decisions that could put you at risk, put off those decisions. At the same time, you can build savings and grow your assets by investing in contributions.

No matter what the economy does or doesn’t do in the short term, this can put you in a stronger financial position in the future. It can also help you navigate difficult financial times more easily by making you and your budget more adaptable and flexible.

At the end of the day, one of the best ways to prevent a financial recession is to stay foresight. Don’t make short-term decisions about what should be a long-term game — remember, recessions are inherently short-term.

They are difficult to experience in the moment, but they will not last forever. Economic trends tend to be cyclical, so periods of economic depression are often accompanied by periods of growth.

Whether or not we’re in a recession in the near future, focusing on the big picture and being proactive are two key ways to safely navigate anything we encounter.

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