Recession Preparation Checklist

Many more people are talking about a coming recession as the current expansion becomes one of the longest in history (see chart below courtesy of www.macrotrends.net).  Business cycles are nothing new and certainly we can expect a recession to come eventually, but no one can accurately predict when it will arrive or how long it will last.  Indeed, some have even said they expect the next recession to be relatively mild and short-lived (we can all hope), but there is no way to know that for sure.  The longer the current expansion lasts and as more data that shows economic weakness comes in, however, the likelihood of a recession in the near future grows.

S&P 500 Historical, With Recessions Shown
What, then, to do to prepare for a recession?  I put together the checklist below based on my experience from the Great Recession and lessons learned from that experience.  You may have your own priorities that are different, but this can serve as a good guide to "get your house in order" to weather the storm and perhaps most importantly, take advantage of the opportunities that will undoubtedly pop up in the wake of the next recession.

1. Budget - Start by reviewing your household budget - is there anything you can cut back on or eliminate to generate a little more cash flow each month (maybe one less coffee at Starbucks each week, find a cheaper gym membership or lose one or two video / music subscriptions)?  Every little bit counts.  $100 saved a month turns into $1,200 in a year.

2. Credit Cards / Loans - If you have credit cards or other personal loans with balances, don't hesitate to dig into your savings to pay them off and funnel the extra cash flow from the payments back into your savings; if money is tight, consider a consolidation loan with a peer to peer lender such as Prosper with a lower rate to pay off the high rate cards

3. Cash Back - As you continue to use credit cards moving forward, make sure you are getting the maximum cash back on every purchase (forget points, cash is better - I currently have a 2% cash back debit card I use instead of credit cards that pays me in MCO cryptocurrency which I can sell for dollars or convert into Bitcoin) and of course, pay off the balance each month

4. Retirement Investments - Look at your retirement portfolio - are you sufficiently diversified with a mix of asset classes?  Consider moving to a more defensive stance (more bonds and fixed income, less stocks)

5. Non-Retirement Investments - Look at your investment portfolio - if you invest in dividend stocks, make sure they have a high likelihood of maintaining or even growing their payout through a recession (I like stocks that have payment histories of 25 years or more with steady increases to the dividend); buy and hold and don't panic if values drop during the recession - consider adding to your positions strategically when the time is right

6. Interest - Maximize your cash interest income by shopping around for the best rate as interest rates continue to fall - TreasuryDirect is still a very good option but so are online banks and brokerages

7. Mortgage - Refinance your mortgage to take advantage of lower interest rates and lower your monthly payment, if it makes sense for you; I was able to refinance recently and lowered my monthly payment by 10%

8. Dry Powder - Keep some cash "dry powder" on the side for investing opportunities that present themselves in the wake of the recession, including stocks, real estate and other assets 

9. Insurance - Check your insurance policies and see if you can lower your rates by switching to a different company or maybe you can lower your rates with your current company by increasing your deductibles

10. Car Loan - See if you can refinance your car to get a lower payment, since interest rates have dropped recently

11. Major Purchases - Minimize major purchases over the next six to twelve months (cars, recreational vehicles, homes, vacations, etc.); these can all take a toll on your monthly cash flow - especially moving to a new home with all the "hidden" costs that you never realize like having to buy new appliances, restocking cleaning supplies and other basic household items, new furniture, movers, utility deposits / connection fees, etc., etc.

12. Phones - It can be a hassle, but you can look into switching your cell phone plan with your current provider to something less costly or possibly switching to a new provider that saves you money each month; also a great way to save money is not to upgrade your IPhone right away; I have an 8 and rather than upgrading to an 11, I can get an XR for a lot less; but I'm waiting until my lease is up to get the best deal.

13. Side Hustle - If you have a side hustle or two, keep them going for extra cash flow as long as they don't impact your current job; the best ones are the ones that don't take a lot of time and pay while you sleep - see my post on passive income ideas here

14. Job - Now is not an ideal time to get a new job in my opinion, as typically the new hires are high on the layoff list when a recession hits; instead, do what you can to expand opportunities for yourself at your current employer and develop your leadership skills

15. Stay Positive - Always remember that it can feel pretty bad during a recession and things may seem bleak at times, but there is always a recovery and new opportunities so it's really important to stay positive and look to the future and not dwell too much on the past or the present.

I hope you find this post useful as you chart your investing course and Build a Financial Fortress this year.

To see all my books on investing and leadership, click here.

Disclaimer:  I use affiliate links where I get paid a small amount if you buy the service or product. This helps support my blog.