“Ain’t nobody recession proof.”
Nas
Since World War II, we’ve gone an average of 58.4 months between recessions, or nearly five years. You can expect to have lived through about eight recessions by the time you’re forty.
There isn’t a silver bullet for surviving a recession. The market is gonna do what the market is gonna do. Still, you can protect your against inflation – check out our post on I Bonds – and try to save up cash reserves. Either way, here are five ways to protect yourself against an all but certain recession.
1. Don’t Take Your Money Out of Your Savings
Taking money out of your 401-K or IRA will hit you with penalties and crush your compounding potential for the future, specifically your retirement. You don’t want to work through your 70s and look back at that consistent “blip” as the reason for your prolonged employment.
The market is going to look like crap. Stay strong, Dads. Investing is truly a marathon.
2. Hold Onto Your Cash
You’ll earn your salary or self-earned cash, plus potentially a bonus. You can avoid taxes if you pour that bonus into a 401-K. If you’ve save a six month reserve, as most every financial expert like Dave Ramsey recommend, go for it. If not, you probably need that cash in your bank account. You could save cash while earning on your investments by adjusting your portfolio and allocations. Critical to this strategy is avoiding a cash infusion into an investment opportunity or junk. Save up to weather the recession.
3. Cut Back on the Spending
Inflation will drive prices up. Shrinkflation will give you less for what you bought just a year ago. This shit is the worst. But, get past the expenditures by buying generic necessities and pruning the extravagances. We’re not saying make your own soap or skipping the Starbucks every time. You can dip into your wants, but you should stay homed in on the needs.
4. Pay Down Your Debts
As the recession kicks in, the rates will kick up. If rates increase, you’ll pay more for outstanding debts, including credit cards. As you save on expenditures, look to pay down your credit card or cash debts. This may be more important than saving up for six months. You could end up saving far more by decreasing your interest rate payments.
5. Stay in the Market
Weathering the down time is tough, but historically there has always an upside on the other end. Just like a bad storm, there’s always a sunny day coming out on the other end. For every contraction we’ve seen a corresponding era of expansion. A typical recession may last about 11 months, but the typical expansion lasts 67 months! That’s a lot of growth after less than a year of depression. Stay in the market and ride the wave back up. Hell, if you have the funds invest during the recession to get in low.
There’s no easy answer to a recession. Everyone struggles, but those who aren’t entitled to far more money struggle the most. Stay strong – we can make this together.
