3 Ways to Recession-Proof Your Finances Now

As a result of the COVID-19 pandemic, many Americans went from reaping the rewards of long-term economic regrowth to experiencing their financial futures hanging in the balance as businesses shut down and employees were laid off.

This isn’t the first recession our economy has faced, and it surely won’t be the last. During the last recession (i.e. 2008/2009), real estate as an asset class suffered substantially. This was reflected in everything from single family home prices to commercial leasing. Back then, the proximate causes were inflated property valuations and overextended lenders. When the economy slowed, the ripple effect made an otherwise cyclical downturn and nasty recession.

To secure your current finances, and to be better prepared for a global emergency that could strike again, it is crucial to develop strategies that will help you hold onto your money.

Not sure where to start? Check out the three key strategies below.

1. Develop Your Personal Investing Style...And Become an Expert In It

When beginning to create an investment portfolio, aligning your investments with your areas of personal knowledge and expertise will position you for future success. For example, if you have experience in real estate or building businesses, that knowledge can guide your investment decisions. Similarly, your understanding of particular industries, regions or countries can be the basis of investment in stocks, bonds or directly.

Finding the investment that’s right for you often comes down to knowing yourself, your strengths, and your unique set of skills as an investor. It is a function of several factors: 1. Your tolerance for risk: If it keeps you up at night or its loss would do significant financial damage, then the investment is probably not for you. 2. Time horizon: Younger investors can wait longer for capital appreciation, while older investors must realize their gains in a shorter time frame. 3. Available time: Most people spend more time planning vacations than retirement, or are busy with careers that leave little time for investment management. Be realistic about the time required to conduct due diligence into investments, monitor their progress and make changes as circumstances change.

As you grow and develop, your knowledge and therefore your personal investing style will evolve as well. Knowing your market, your target, and your goals will aid you in securing your future wealth.

2. Perform your Essential Due Diligence.

If diversifying your portfolio is new territory for you to explore, it is best to do your due diligence. Research online sources, publications, and stories from other investors to learn more about what it is you’d like to invest in. Then make the proper risk analyses to assess that investment up against factors such as retirement age and the time you are willing to commit to an investment.

All investments have their inherent risks, but that risk-level can be greatly diminished by gaining the knowledge necessary to make the investment. Having a full understanding of the market you are investing into is crucial when it comes to evaluating risk versus reward. The way you structure your deals may be contingent on where the market is, so keeping a finger on the pulse of market conditions and performing due diligence on those trends is also a vital part of your responsibilities as a proactive investor.

The same goes for having clear strategies for entering and exiting an investment. This way, should the market suddenly change and things take a turn for the worse, you are fully-equipped with the knowledge necessary to navigate your way out of an investment in order to rebuild your wealth. Due diligence should include constructing not only expected case scenarios and forecasts, but should also include ‘what ifs’ for adverse events or circumstances.

Vetting any investment partners is also a key component to your due diligence. Factors like time, age, and areas of expertise should complement your own strengths and weaknesses as an investor, and therefore make your team as impenetrable to change as possible. Knowing the background and reliability of your partners will be a key factor in the success of your investment’s future, even in uncertain times.

3. Grow and Expand Your Savings.

While it’s always a good idea to have readily accessible reserves on hand, the importance of those reserves is even more apparent in the wake of an economic crisis. In fluctuating markets, the well-known phrase “Cash is King” remains true. Drastic changes in the economy like the one we see currently can lead to high points, such as lower prices for subcontractors, but also low points, such as apartment buildings with vacancies due to tenants no longer affording rent. In both instances, having money set aside for making those advantageous purchases or covering the cost of losses plays a major role in reducing your anxieties.

Adjusting your own spending habits or expenses is another way to contribute to the savings nest egg that will protect you against the impacts of recession. Simply reducing the number of nights you eat out in a month or cutting down spending to only the necessities will aid your finances against economic downturn. These reserves can be anything from savings accounts, to lines of credit, insurance, or even retirement accounts.

Looking Ahead

Whether you’re a small business owner, a private investor, or even a wealthy entrepreneur, the pandemic has forced each investor to utilize their personal investing style and knowledge however they see fit in order to protect their finances.

While saving and holding onto our reserves is crucial at this time, it’s also important to reach out to your network of fellow investors, advisors, and partners to continue connecting in trying times. The current economic recession came about from unprecedented circumstances, but we can still come together to support each other and grow stronger. 

Have these, or any other strategies, worked for you? Share in the comments below!