Recession Prep To-Do List

Nobody like recessions, but they are a part of the market cycle. Here is the short list of things to do when you think we are in one or close to one.

Here we are, with massive tech layoffs, the S&P 500 index down almost 20% for 2022, and increasing discussion from business leaders about recession on the horizon, you might wonder what you can do. While everyone’s situation is different, here are a few things I find myself saying over and over.

Have six months of expenses in a cash reserve account.

Not three months, not a line of credit (which banks can shut off if their risk needs to be reduced), and definitely not blissfully relying on your employer to never turn on you in a round of layoffs due to your “loyalty”. Historically I’ve gotten a lot of grief for this one, especially with inflation sky high. However, I’ve seen first hand throughout my career the power of having a reserve when someone does not have to take the low-ball offer after a layoff or worry about making tough choices that seemed to be unfathomable a short time before. It does the same thing your brakes do on your car, it slows you down, and will help avoid worse outcomes. I recommend finding a high yield savings account that is FDIC insured where you can use the funds within a day if you need them. If you are very nervous, feel free to go to a year of expenses in cash. I would discourage pre-paying for things unless you already have at least six months of expenses saved.

Pay Down High “Bad” Debt

We all love not having a bill to pay anymore. Find a debt you can eliminate, and pay it off, do this until your debts are paid. I would not do this with your mortgage, but every situation is different so make sure to apply logic to your situation.

Buy The Dip, if you are up for it

It’s scary when all you see is red on the screen, but that’s the time to buy. If you can handle the risk, be patient (multi year patient), and know it’s long term, recessions make millionaires. This might take the form of increasing your 401(k) contribution or opening a separate brokerage account to make trades away from your “main” strategy.

Get Healthy

Yes, get outside, go for a walk, lift weights, or do whatever works for you. I know, gyms cost money, but outside was free last time I checked (earlier today).

Spruce up your resume and LinkedIn

Shameless self promotion is never a bad thing. Taking extra courses online can help you improve or refresh you skillset. This doesn’t have to be costly either.

Be (or get) realistic about your spending

Living in la-la-land will not do you any good, I also encourage being transparent with anyone you share a financial situation with such as your spouse. I find myself using a spending tracker and a regular discussion with clients works best. If you don’t have a planner, set a specific time you will sit down an have an honest look at your spending. We should all remember C.R.E.A.M. from Wu-Tang….cash goes from trash to king in a recession or if you are suddenly out of a job.

Rebalance Your Portfolio

If you don’t rebalance, you risk your portfolio going up a lot slower than it went down. While recoveries almost always take more time than the downfall did, this is one thing to do to make sure your portfolio doesn’t get out of wack. It’s important to do this on an on-going basis.