How to Prepare for a Recession in 2024 – 7 Practical Advices

Hello and welcome to Financial Confidence Blog! Today we will have a closer look on how to prepare for a recession. Over the past few months, you probably heard many times about the upcoming recession which is expected this year. We don’t know exactly when, and how it will look like, but we know it is coming. And it’s good that we know, because we can be prepared. In this article I collected and summarised the essential tips and advices on how to prepare for a recession and how to manage personal finances during the uncertain times.

By following these practical and effective steps, you’ll be well-equipped to face any economic downturn with confidence. It will help to take control of your finances and emerge stronger on the other side.

Advice #1. Check how your assets are allocated

The first tip on How to prepare for a recession is to check how your assets are allocated. What percentage of your assets are Stock Market investments, what is in cash, what is in gold, what is in real estate. We know that in the time of recession the stock market can go down by 30-40% or even more. For example, if you have 70% of your assets allocated in stocks, and the stock market will drop 50% during a recession, it means you will lose 35% of all your Money (Diagram 1). The stock market may recover over a time, but it might take a few years.

Real estate can also go down 20-30%. And if 80% of your assets are allocated in property, and real-estate market will go down 30%, it means you will lose 24% of your Money (Diagram 2).

Diagram 1.

Diagram 2.

These are just the extreme examples. But the idea of this exercise is to see how your assets are distributed and what are the potential risks. Maybe you will want to change the percentage of how your assets are distributed.

Just a side note – it’s good to avoid making impulsive investment decisions and to consult with a financial advisor if you’re unsure about your strategy.

Advice # 2. Build an Emergency Fund and Save Money

The second tip on How to prepare for a recession is to build an emergency fund and save as much money as possible. The standard advice about building an emergency fund is to save enough money to cover your living expenses for at least three to six months. However, if you lose your job during a recession, in practice it might take up to 8 months to find a new job. So ideally you should build an emergency fund which will cover your living expenses for 9 months up to one year. In the event of a job loss or income reduction, this safety net can be a lifesaver.

When preparing for a recession it’s good to save money aggressively. Even if you already have a robust emergency fund, it’s definitely a smart idea to keep living frugally and continue to save money. Because having cash during a recession can open great opportunities for financial growth. If you have cash during a recession, you are the king!

You may also like the article: 40 Frugal Living Tips to Save You a Lot of Money

Advice #3. Pay Off High-Interest Debt

The third advice on how to prepare for a recession is to Pay Off High-Interest Debt. Recessions often lead to higher unemployment rates and reduced income. Imagine someone loses his job but still has to pay high-interest debt – it’s a very unpleasant situation, and we should try to avoid that. By paying off high-interest debt, such as credit card balances, you’ll be in a better position to manage your finances during uncertain times. Reducing debt can also help improve your credit score, making it easier to secure loans or refinance your mortgage if needed.

Advice # 4. Diversify Your Income Streams

The fourth advice on How to Prepare for a recession is to diversify your Income streams. Consider taking on a part-time job, freelancing, or exploring passive income opportunities like investments or rental properties. Having multiple income streams can provide a valuable cushion if your primary source of income is impacted by the recession.

Advice # 5. Create a Budget and Cut Expenses

The advice number five on How to prepare for a recession is to create a budget and cut expenses. During a recession, it’s essential to have a clear understanding of your financial situation – how much money you have monthly, and how much money you spend. Create a budget that outlines your income and expenses, then look for areas where you can cut back. Reducing discretionary spending, such as dining out or entertainment, can help you save more money and prepare for potential financial challenges.

Advice # 6. Invest in Education and Skills Development

The tip number 6 on How to prepare for a recession is to Invest in Education and Skills Development. Investing in your self can be a really smart move here. Let’s imagine that you will need to find a new job during a recession. There will be a big competition of potential candidates. How do you stand out? You need to make sure that you will be chosen from the hundreds of other people. By improving your skillset, you’ll be more marketable to potential employers, increasing your chances of finding a job or transitioning to a new career. Online courses, certifications, and workshops are cost-effective ways to learn new skills and stand out from the crowd.

You may also like the article: 12 FREE Online Courses From Harvard University That Can Pay You US$7,000 A Month With A Side Hustle

Advice # 7. Strengthen Your Professional Network

The advice number 7 on How to Prepare for a recession is to Strengthen Your Professional Network. A strong professional network can be a valuable asset during a recession. Focus on building relationships with colleagues, industry professionals, and potential employers. Attend networking events, join online forums, and participate in professional associations. A robust network can help you uncover job opportunities and provide support during challenging times.

Bottom Line.

Now it is a very good time to think about How to Prepare for a recession. We know it is expected this year, and we can use the remaining months to get prepared. If we follow these simple advices, it can help mitigate the financial impact of an economic downturn.

I hope it helps. Have a great day and see you soon!