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- With the bumpy ride of the economy, my husband and I are preparing for a recession.
- We diversify our sources of income, maintain a strong emergency fund and keep our pantry well stocked.
- Hopefully, these layers of protection will prevent an uncomfortable financial situation in a possible recession.
In my household, we are taking steps to prepare for a possible recession, starting with four steps:
1. Diversify our sources of income
As a child, I lived through the Great Recession. What I learned the most from this painful experience is that it is possible to lose your job overnight. If this job is your only source of income, recovering from job loss can be particularly stressful.
My main source of income is my career as a freelance writer. My husband’s job as a research assistant provides another income for our household. But beyond our regular jobs, we are looking for new ways to diversify our sources of income. For example, I also started spending time learning new skills to offer as a freelancer, and we started taking stock market investing seriously. In addition, we purchased a rental property with the aim of creating another source of income.
The more income streams we create, the safer we feel to survive a recession. While it is likely that we will lose one or two streams of income during an economic collapse, it seems unlikely that we will lose all of our income streams overnight.
2. Maintain a strong emergency fund
A strong emergency fund has always been the cornerstone of my financial plans.
If a recession is on the way, it is difficult to know what the impact will be on our revenues. But if all our sources of income ran out, I know we would have some time to figure out our next move.
Typical expert advice is to keep three to six months of expenses on hand, but I chose to keep between nine and 12 months of expenses in our emergency fund. With my very erratic income, I feel more secure knowing that we could manage for a while, even if all my work disappears tomorrow.
Whether or not a recession disrupts the economy, this emergency fund will be a cushion for the unexpected. We hid our emergency fund in a high-yield savings account, which means we earn interest on that pile of cash.
3. Keep a stocked pantry
If you’ve been to the grocery store lately, you’ve probably noticed that food is getting more and more expensive. According to the Consumer Price Index, the cost of food at home has increased by 10.9% over the past 12 months. With food prices rising rapidly, this is already putting some strain on our household budget.
One of the ways I prepare for a possible recession is to stock up on non-perishable food. If I find a good sale, I will buy more. Some of the essentials I buy include flour, sugar, rice, beans and other dry goods.
This strategy is useful when dealing with higher food costs. But if a recession hits, we’ll have another layer of protection. If our income drops unexpectedly, we can limit our trips to the grocery store by relying on what’s already in our cupboards.
4. Refuse to go over budget this holiday season
As a household, we monitor our expenses on a monthly basis. In general, we respect our budget well. But usually, holiday festivities cause us to spend more than usual.
This year, we’re making a point of sticking to our budget throughout the holiday season. We’ve allocated funds to get into the holiday spirit, like paying for our decorations and gifts for our family. But this year we are looking for free holiday activities to avoid overspending.
Beyond taking a close look at our vacation spending, we started looking for other ways to reduce our costs. For example, my husband started taking care of oil changes for our vehicles himself, which allowed us to save several hundred dollars annually. We also looked for ways to limit spending on recreation. As a voracious reader, that meant more trips to the library for me.
Personally, I have a very low risk tolerance and irregular income. With this, I feel more comfortable knowing that I am doing everything I can to keep our household financially afloat through whatever the economy throws at us.
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