Right now, we’re in the middle of some very stormy weather. Aside from our health concerns, our collective worry about the changing economic conditions has come to the forefront. Since we don’t know how long the stay-at-home order will be, we also don’t have a sense of how deep the economic impacts will be. One thing seems certain: we’re heading for a recession. So what can you do when the rain just won’t let up, and in fact, comes down harder? How do you prepare for a recession? That will depend on your situation. Let’s take a look at some metaphoric rain gear that can help you get through the worst of it. 

Mentally prepare yourself for recession.

Stop yourself from playing a game of “What if?” and assume we’ll experience a recession. This way, you have certainty, even if it’s not the most uplifting scenario. Then, you can think more concretely about how a recession may impact your situation. What would you plan to do differently in this case? 

Recovery from recessions and pandemics like Covid-19 will take time. Make this your baseline scenario rather than trying to plan on how long something may last. If the economy turns around quicker than expected, then the upside is you’re over-prepared. But life isn’t going to go back to normal with the flip of a switch, and it’s best to make decisions from this perspective.

Focus on liquidity and flexibility.

This means looking at how much access you have to cash savings or investments that can be sold and used, if needed. Context matters here. If you’re a tenured professor with a secure income picture, then maybe you don’t need as much flexibility as someone whose total compensation is tied to the performance of a larger enterprise. Or maybe your expenses are quite low relative to your income, in which case you may not need loads of liquidity. If you’re a small business owner, however, your income may naturally decline depending on how sensitive your business is. Does the business have ample cash and liquidity to cover its bills and support your income? Where can you pull from to stay afloat? Do you have bank lines of credit or savings? 

Seek out any financial assistance that may be available from new government programs.

The CARES Act passed by Congress in late March provides an array of benefits in the form of tax rebates, relief for small businesses, and even some relief for student loan borrowers. Here’s a helpful summary. These programs can be powerful tools for your situation, so take advantage of what’s available to you. And, if you are eligible for any particular programs, make sure you are actually receiving the benefits! 

Sharpen your focus on cash flow.

How much are you really spending? Can you trim any unnecessary expenses as a precautionary measure? Being locked down at home may solve some of those problems for you as every day expenses like gas, transit, eating out, and your daily coffee drastically reduce. A natural decline in your spending means you can buffer your savings. Now is the time to add extra money into your account. Then if any unexpected shocks come along, you’re prepared.

Read: The Real Purpose of a Personal Budget

Read: Create a Personal Cash Flow Management System

Stop looking at your portfolio everyday!

It’s bad for your mental health, and frankly it’s not that productive either. Have a conversation with whoever is helping you manage your finances. Or, if it’s yourself, understand what you’re truly afraid of: is it each day’s market movement or something bigger? Are you afraid of not reaching your financial goals? If the market has impacted your plans for the future, you can always utilize other strategies to help.

Read: Creating a Long Term Investment Plan: Tune Out the Noise!

Don’t forget to treat yourself!

Maybe it’s an odd time to think about indulgences… or maybe it’s actually the perfect time. After this is over, we’ll all need to return to the things that give us happiness, so, if you can, set money aside to do just that. It’s important to remember that while life won’t be completely normal, everyday pleasures will return. Maybe your favorite restaurant will reopen, or you can take a weekend trip for the summer. Whatever it is, give yourself something to look forward to. 

When you’re hunkering down for what feels like the storm of a lifetime, preparation is key. Stocking up your savings is as important as stocking up your pantry. Think of what you can control—your spending, your current savings, and your mindset—as what guards you from inclimate weather. Reinforce what protects you already, and the debris will bounce off.

Need help thinking about how you can prepare for recession? Interested in working together? Learn more about my financial planning services!