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What to Do When a Recession Is Coming

Recession is Coming Snow Forest and Single Road

A decade ago I was in debt up to my eyeballs.  Today after paying off thousands in debt, maxing out my retirement accounts, and selling a house for a profit my wife and I have thousands in our retirement accounts and beyond to lose.  So recently when a recession like stock market plunge happened I started thinking what exactly I should be doing right now? Here’s my thoughts on what to do when a recession is coming.

Reinforce Your Emergency Fund

The stock market is on a roller coaster ride dropping hundreds of points in a day and people are starting to get nervous. 

While I know contributing to your emergency fund doesn’t sound like the next step in your plan, but it truly should be.

When a recession is on the horizon that usually means corporate earnings are going down.  The company that you work for needs to make a profit to satisfy the owners and in many cases stockholders. This often means company cutbacks and one of the easiest things to do is cut down on the number of employees. 

So er go build up that emergency fund folks in case they start sending out company wide memos indicating that “times are tough” and we are letting you go.

Ask yourself can you live on a 3 month emergency fund before finding work?  6 months? What is going to help you sleep at night?

Earn Extra Income

This is the best time to earn extra money.  We don’t know what is around the corner, but having an extra $500 or $1000 month coming in sure will be helpful. 

This can potentially be building up more of your emergency fund, paying down some high interest debt, or even replacing part of your salary.

When earning extra income I suggest starting with the common sense approach.  Ask yourself a simple question what do I already do that I can earn extra income?

For example if you are a teacher you may be able to pick up summer school teaching or driver’s education.  If that’s not available you can begin tutoring and making extra income.

Start with the common sense question to earning extra income, it makes sense.  Then move to something you have a real passion for.

If you are reading this article maybe you really enjoy personal finance.  Have you considered starting your own financial coaching business?  Check out my recent article to learn more.

Trust the Process and Keep Investing

One of the most difficult things will be to trust the plan your financial coach or your financial advisor or financial planner put together.  It will be tough to see your investment lose $10,000 in a month, week, or day. Don’t sell. Emotions are running high, stay calm.

The stock market over time goes up.  It might not go up tomorrow or the next but it will go up.  Math and history are on our side (disclaimer past results don’t guarantee future performance) despite the disclaimer.

Recession is coming grey ipad with stock graph

Stocks go up and stocks go down, take notes everyone

Yes, keep contributing to your 401K, IRA, H.S.A., and every other retirement account you have. Keep investing in the stock market and your retirement accounts.  For a person like me in my 30’s I have 20 plus years before I retire and this is the key to keep investing today, tomorrow, and for the next 20 plus years.

Follow your Financial Plan

It’s important to take a look at your long term financial plan and see if you are following the plan.  Having an investment philosophy will also play an important role in your decisions moving forward.

Here are a couple of items I recently looked into:

  • Rebalance my portfolio
  • Future investment contributions updated to heavy in stocks while the market is down
  • Extra cash/extra income towards individual stocks that fit my investment philosophy

The most important part is to follow your financial plan.  My investment philosophy is heavy in stocks as my comfort level or risk tolerance is probably higher than most.  For me this is actually a time to not overreact and buy more, as strange as that might seem to some.  

If I follow my financial plan when a recession is coming it will lead me down the right path.

When a recession is coming if you reinforce your emergency fund, earn extra income, trust the process and keep investing, and follow your financial plan you may still get a little bumped and bruised but you will be in much better shape than without these steps.

Financial Action Plan with a Financial Coach

Worry less about your money with a financial action plan in place.

One of the main ways I help my clients is to create a financial action plan. I work as a financial coach at Even Steven Money to provide provide an “Action Plan for your Money”.

Imagine working with someone who cares about your financial goals and can help guide you on your financial journey.

Worrying about your money every day isn’t a great financial mindset to have.

Why not work with someone to create a financial action plan and put all your financial worries behind you!  Why not work with someone who will hold you accountable through the upturns and the next recession?

FAQ What to Do when a Recession is Coming

How do you survive a recession?

Having an emergency fund, tracking expenses, and making sure that you are living within your means will be crucial during a recession.  It’s important to have a financial plan and stick with it. Trust the process and the long term historical results of the stock market. Don’t listen to the masses.  Do your own research and come to a solution that fits your financial needs.

What should you invest in when a recession is coming?

If you have a time horizon of more than 10 years keep investing within the construction of your financial plan.  Have an investment philosophy and stick within those parameters when investing. This isn’t about a recession as much as it’s about your long term financial plan.

Is there a recession coming in 2020?

A black swan event, circuit breaker trigger, oil collapse all just hit us recently, anything is possible.

Disclaimer:  Like everything you read on the internet make sure to do your own research, remember I’m just a guy on the internet.  Trust but verify.

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(1) comment

That’s a bunch of do’s and dont’s but its essential to keep us ready for recession because we’ll never know when will it come and strike us again.

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