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7 Things You Need to Do Now to Prepare for the Next Recession

In the TV show “Game of Thrones,” the motto of House Stark is “Winter is coming.” These words serve as a warning; even in a world where summer often lasts for years at a time, it’s certain that winter will come again, and it’s important to be prepared for it.

Change the word “winter” to “recession,” and this warning makes just as much sense in our world. Like the climate in “Game of Thrones,” our economy moves in cycles, with years of economic growth followed by years of decline. Even when the economy seems to be booming, another recession is always on the horizon. It’s impossible to predict exactly when the next recession will hit, but there’s no question that it will come.

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If you want to make sure the next economic slump doesn’t harm you or your family, take a page out of House Stark’s book and plan ahead. Just as the people of the northern kingdom spend the summer preserving their harvest to get them through the coming winter, you can take advantage of an economic boom to shore up your finances. That way, when the next downturn hits, it won’t take you down with it.

1. Improve Your Employability

New Skills Training Signage Highway Blue

When a recession hits, employers cut back on hiring and sometimes even scale back staff. Finding a new job becomes harder, and there’s a greater risk of losing the one you have. No matter how secure your job seems right now, it pays to prepare yourself for the possibility of a harsher job market.

Take the Plunge on a New Job

If you’ve been thinking about changing jobs, the best time to do it is while the economy is healthy. Finding a new job will be much harder once an economic slowdown starts. If you find a new job now, you can hope to be firmly settled in at your new workplace by the time the recession hits. This reduces the chance that you’ll be the first to go in a round of layoffs.

If you’re thinking about going further and making a career change, this will also be easier to do when the economy is strong. You’ll have a much better chance of finding a job in your new field when jobs are plentiful. If you wait until the economy slows down, you’ll be competing with other job seekers who have more experience.

Update Your Resume

Even if you’re not looking for a job right now, keep your resume up to date so it will be ready to go if you need it. To create an effective resume, use a clear format and a concise style, keeping it to one page. Include your work history, skills, and achievements. Don’t forget to proofread; nothing makes a bad impression like errors in spelling or punctuation.

Your resume should also include a couple of references from people you’ve worked with. If your current references are a few years old, check that their contact information is still accurate. While you’re at it, get in touch with them to make sure they still remember you and don’t mind being used as references. See if you can add at least one newer reference, as well, so employers will know you’re still doing well at your present job.

Once your resume is up to date, consider posting it on a few job search sites to make it easier for potential employers to find you. Good places to put it include LinkedInJob Central, and Jobseeker.

Network

Even in the modern world, most people find their jobs through good old-fashioned networking, or talking to colleagues, acquaintances, and friends who know about job openings. According to PayScale, anywhere from 70% to 85% of employees found their current jobs this way. So, even if you’re not job-hunting at the moment, keep in touch with your network and work on expanding it where you can.

Seek out groups and events that can help you meet highly placed people in your field who could be in a position to offer you a job someday. Attend industry meetings but also keep an eye out for colleagues at alumni gatherings and even social events. Develop an elevator pitch – a 15- to 30-second explanation of who you are, what you do, and what kind of job you’re interested in – and be ready to trot it out when you meet new people.

Seek Job Training

When jobs are scarce, employers can afford to be picky and seek out, or hold onto, only the best workers. You can improve your career prospects by beefing up your job skills now.

Seek out additional training or certifications that will make you a more desirable employee, either in your current field or in a new one that interests you. This will help you hold onto your job if there are layoffs down the road, or find a new one if you need to. It’s much easier to devote time and money to training when you have a job than to scramble to boost your skills when you’re out of work.


2. Develop Extra Income Streams

Side Hustle Extra Income Puzzle Piece

Even if you don’t lose your job in the next recession, you could find yourself having to do without bonuses or overtime pay that you’ve come to depend on. Employers tend to cut back on overtime hours when money is tight.

To fill in the gaps, look for ways to make a little extra income on the side. These added income streams can give you more wiggle room in your budget if your hours get cut and help you get by if you lose your job.

Possible sources of extra income include:

  • A Side Job. There are all kinds of side businesses you can operate while still working full-time. Possibilities include tutoring, freelance writing, selling crafts on Etsy, walking dogs, mowing lawns, or driving for DoorDash or Uber. You can also earn extra money online by picking up odd jobs on sites like Fiverr, TaskRabbit, and Amazon Mechanical Turk.
  • Rentals. If you own an asset you don’t use all the time, from a spare bedroom to a power tool, you can make some extra money by renting it to others. You can rent out a room to a regular tenant or just rent it out for a few days at a time through a house-sharing service like Airbnb. A service called SPOT lets you rent out a parking spot you’re not using, and Turo lets you rent out your cars.
  • Investments. There are many types of passive income investments that bring in a steady stream of extra cash. These include investing in art through Masterworks, dividend-paying stocks, bonds, annuities, and peer-to-peer loans.
  • Advertising. You can sell ads on just about anything. You can put ads on your blog, on your car through sites like Carvertise, or on even on your own skin through Lease Your Body, which matches up advertisers with people willing to wear temporary tattoos of their company logos.
  • Rewards. You can pick up a surprising amount of extra cash through shopping rewards programs and apps, such as InboxDollars or Swagbucks. You can also get cash back on the things you buy with credit card rewards programs – though, obviously, shopping more just to earn rewards won’t work out in your favor.

3. Boost Your Emergency Savings

Save Money Piggy Bank Dollars Glasses

If you find yourself suddenly out of a job or trying to get by on a lower income, an emergency fund can get you over the rough patch. If you don’t have an emergency fund, this is the time to start one with a high yield savings account from CIT Bank. If you do have one, consider building it up a bit more.

Experts typically recommend keeping enough money in your emergency fund to meet all of your expenses for three to six months, but if you’re worried about a possible recession, up to a year’s worth of expenses isn’t excessive. Crunch some numbers to figure out how long your savings would last in different situations. For instance, if you lost your job but still had your side income, how much would you have to pull out of your emergency fund each month to pay your bills?

If you can’t figure out how to come up with the cash to start or add to your emergency fund, look for hidden budget busters you can cut back on to save money. You can also direct any cash windfalls, such as a tax rebate, to your emergency fund. To make the most of your savings, stash the cash in low-risk investments that earn more than a basic savings account, such as online bank accounts or CDs.


4. Reduce Your Expenses

Cut Expenses Orange Scissor Letters

When you’re trying to get through some tough times, how much money you have is only one side of the equation. The other side is how much you spend. The less money you need to pay the bills, the longer you can keep yourself going with just your side income and emergency savings.

If you can get into the habit of living on a tight budget now, you won’t have to make painful changes in your lifestyle if your income suddenly drops. And in the meantime, you can use the extra money to build up more savings or pay off debts, freeing up still more cash in your budget. Here are a few suggestions:

  • Make a Budget. If you don’t already have a household budget, make one now. It will show you where your money is going and help you figure out where you can cut back. Money-tracking programs, such as You Need A Budget (YNAB), can make this easier.
  • Go Contract-Free. If you’re locked into a contract for services like your cell phone, cable TV, or Internet, you can’t easily cut back on these expenses at a moment’s notice. However, when your current contracts on these services expire, look for contract-free alternatives. Consider switching to a cheaper cell phone plan and dropping your cable TV in favor of a less-expensive streaming service. You can also drop your pricey gym membership and work out at home for free.
  • Lower Your Utility Bills. Look for ways to reduce your utility bills by saving energy at home, such as switching to energy-efficient lightbulbs, adding weather-stripping, or washing clothes in cold water. You can also cut your water bill with water-saving strategies like fixing leaky faucets, taking shorter showers, and choosing drought-resistant plants for your yard.
  • Kick Your Bad Habits. Cutting out, or cutting back on, bad habits like smoking, drinking, and gambling can save you hundreds or even thousands of dollars. For instance, if you pay $6 for a pack of cigarettes, kicking a pack-a-day smoking habit would save you over $2,000 a year.
  • Slash Your Food Bill. If you’re used to eating out a lot, save money on food by cooking at home more often. Save money at the grocery store by stocking up during sales, using coupons, and making a price book.

5. Pay Down Debt

Calculate Debt Coins Pen

Another way to reduce your expenses is to pay off debt. Debt is a real drag on your budget, an expense you have to keep paying every month that gets you nothing in return. The more of it you can pay off now, the better shape you’ll be in to ride out a recession when it hits.

If you have several types of debt, the most important one to pay off is credit card debt, which carries a higher interest rate than most other loans. If you can also manage to pay off a car loan, a student loan, or even a mortgage, you’ll free up even more room in your budget. It’s a lot easier to face a recession knowing you own your car outright and no one can ever come knocking at the door to repossess it.

If you’re having enough trouble right now just making the payments, let alone paying extra, consider trading down to a cheaper car or even a cheaper home. Dialing back these major expenses will make it a lot easier to live within your means and give you less to worry about for the future.

While it’s helpful to pay off your credit cards, that doesn’t mean you should close them. Although you hope you won’t have to run up a balance again, it’s good to have the option of falling back on them if money ever gets tight. In fact, if you don’t currently have any credit cards or other lines of credit, now is probably a good time to open one, while banks are still eager to lend. Once the recession hits, it could be too late, since banks are much warier to extend credit during a downturn.


6. Get Your Insurance in Order

Car Insurance Calculator Red

One of the best ways to protect yourself in a recession is to carry enough insurance. A healthy emergency fund can’t help you if all your savings are at risk of being wiped out by an auto accident, house fire, or major illness. There are four major kinds of insurance you need to protect you and your family from this kind of financial disaster: auto, homeowners, health, and life insurance.

Auto Insurance

All auto insurance policies provide liability coverage, which protects you from being sued if you’re at fault in an accident. However, if you want to be covered for the cost of damage to your own car, you need collision coverage as well. You can also add comprehensive coverage, which pays for damage from theft, vandalism, or anything other than an accident.

The purpose of liability insurance is to protect your assets, so the more money you have, the more coverage you need. If you’re young and broke, it doesn’t make sense to carry more than the minimum. However, if you own a home and other investments, your liability insurance should cover the value of these assets so you can’t lose them in a lawsuit.

As for collision coverage and comprehensive coverage, they never pay out more than your car is worth. To figure out how much you need, use a site like Kelley Blue Book (KBB) to estimate your car’s value and aim for somewhere around that amount. Keep in mind that if your car is quite old, its value could be so low that this insurance isn’t worth the cost of the premiums. If you’re paying at least 10% as much per year for this coverage as you could get back when making a claim, it’s probably time to drop it.

Homeowners Insurance

Unlike auto insurance, homeowners insurance usually doesn’t let you pick and choose what coverage you get. Every policy protects both your dwelling and its contents against major disasters like fire, theft, and storm damage.

However, you can choose the amount of coverage, so make sure you get enough to cover the full replacement value of your house – that is, the amount it would take to rebuild it if it were destroyed. Your insurer will usually suggest a replacement value for your home, but you can double-check their figure using a site like Cost To Build. Creating a home insurance inventory will help you figure out how much coverage you need for your personal belongings.

If you don’t own your home, you don’t need to cover the cost of rebuilding it. However, it’s worth looking into buying a renters insurance policy to cover your personal property against theft or damage.

Health Insurance

Health care is expensive, and a single major medical crisis could easily wipe out all of your savings. According to CNN, the average cost of an emergency room visit in 2016 was $1,917 – and that doesn’t even include the doctor’s fee. That’s why you need health insurance.

If you’re self-employed or work for a very small company that doesn’t have a health plan, the best place to look for insurance is the state health exchanges created by the Affordable Care Act, otherwise known as Obamacare. You can buy a policy on the exchanges during the yearly Open Enrollment period, or at any time if you’ve had a “special event” such as losing your previous coverage. Visit Healthcare.gov to find the exchange for your state.

If the prices of policies on the exchange look high, don’t panic. Depending on your income, you could qualify for a subsidy that will cover much of the cost. If that doesn’t apply to you, try looking for a basic “bronze” policy with lower premiums. It won’t cover as much of your health care bills, but it’s better than nothing.

Life Insurance

Unlike other kinds of insurance, life insurance doesn’t protect you from loss; it protects your family. In the event of your death, your life insurance policy will provide them with the money they need to pay for your funeral and make up for the lost income you’ll no longer be able to provide. Thus, you only need this coverage if you have people who depend on your income. If you’re young and single, or if you’re financially independent and all your kids are out on their own, you can manage without it.

If you decide you need life insurance, the next question is how much. One common rule of thumb is that you should take out a policy worth 8 to 10 times your annual salary, which will provide your family with at least 8 to 10 years’ worth of living expenses. If you think that’s not enough, you can multiply your salary by the number of years you have left until retirement. That amount will make up for all the income you would have brought in if you’d lived.

There are two kinds of life insurance. Term insurance covers you for a specific amount of time, while permanent or whole life insurance combines insurance with an investment that builds value over time. The downside is that whole-life policies are much more expensive, so if all you want to do is protect your family, a term policy is your best bet. Choose a term that matches the number of years you have left before retirement; after that point, your family will no longer need your income, so you won’t need the policy anymore.


7. Adjust Your Investments

Financial Planner Talking With Couple

Let’s be clear: trying to “recession-proof” your investments isn’t a good idea. Sure, you could pull out of the stock market completely and avoid losing money when it crashes, but since there’s no way to predict when that will happen, you could end up missing out on big gains instead. And even if you pick exactly the right moment to get out of the market, you won’t be sure when is the best time to get back in.

Thus, dumping your stocks entirely isn’t the right move. However, it does make sense to adjust the amount of money you keep in stocks to fit your current level of risk tolerance.

For instance, if you’re right on the verge of retiring, you’ll probably want to keep a good chunk of your portfolio in cash and bonds so you’re guaranteed to have money to fund your retirement when you need it. If you’re younger, you can afford to keep most of your investments in stocks, since even if the market crashes, it will have plenty of time to recover before you retire. If you’re not sure what balance of stocks and other investments is right for you, talk to a financial planner.


Final Word

Planning for a recession is just like planning for a natural disaster. You can’t stop a hurricane or earthquake from striking, but you can outfit your home properly to prevent damage and stock it with the supplies you’ll need to get through the crisis. Likewise, you can’t prevent a recession, but you can make your financial life as secure as possible against its ill effects.

Since you can never be sure exactly when the next recession will hit, the best time to prepare for it is right now. By the time economists start declaring that we’re officially in a recession, it’s too late to start seeking out job training, paying off debts, or building up your emergency fund. By doing these things when you have the chance, you’ll improve your ability to ride out an economic downturn without any serious financial pain.

What have you done to get ready for the next recession? Do you have any other tips to offer?

Amy Livingston
Amy Livingston is a freelance writer who can actually answer yes to the question, "And from that you make a living?" She has written about personal finance and shopping strategies for a variety of publications, including ConsumerSearch.com, ShopSmart.com, and the Dollar Stretcher newsletter. She also maintains a personal blog, Ecofrugal Living, on ways to save money and live green at the same time.

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