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An 8-Step Checklist to Recession-Proof Your Finances

When interest rates and fuel prices are surging, the housing market is slowing, and stock market volatility is rising, it causes a lot of people to ask themselves: Am I prepared for a recession?

The old joke among economists is that a recession is when somebody you know gets laid off; a depression is when you get laid off. (That’s why you find economists at the NBER and not at the Improv.) That being said, is the U.S. actually in a recession? There are plenty of scary headlines and probably more to come. But the answer is, I’m not sure — no one really knows until we are already in it. With inflation at an all-time high, hearing more about layoffs, and unrest in global stability, people are wondering how they can protect their hard-earned savings from what’s potentially to come. All you can do is prepare your financial life just in case. The good news is that even just doing a couple of simple, smart habits daily can help you protect you from getting totally burned by the effects of the current economic climate. Here are eight things to put on your recession preparation checklist.


  1. Have an Emergency Fund Always make sure you have some cash set aside to prepare you for the worst. The last 3 bear markets we’ve experienced since 1980 have lasted anywhere from 3 months to 2+ years. Considering this, it’s smart to have at least 12 months worth of cash on hand. Overall, the goal here is to have enough backup to prevent you from having to sell your assets at recessed prices. There are plenty of HY savings accounts available, take advantage now.

  2. Have Additional Income You may already have a full-time job, but job security is not a sure thing during a recession. Consider some outlets for your current skills or resources that are valuable to others — especially during tough times. Whether that’s coaching/private training for young kids, consulting or freelancing, selling on Amazon or eBay, etc., make sure you have more than one stream of income to fall back on. While you may not be making as much money with one as you would another, at least you won’t be left with no earnings at all. Ask me about K Wealth’s Productive Capital Approach.

  3. Diversify your Investments This one will be pretty easy if you are a client of K Wealth Advisors. If you don’t do this already, analyze your portfolio to match your current risk tolerance with your time horizon and personal acceptance of risk. You don’t want to take a big hit to your investments if you plan to retire in the next few years. On the opposite side, if you are not planning on using the money, you might see this as an opportunity to buy on the cheap. Either way, you’ll want to diversify the investments you hold to limit the individual risk and not be concentrated in one type of investment. You want to develop a portfolio of investments that are not strongly correlated to help ballast your portfolio.

  4. Match Your Asset Allocation with Your Risk Tolerance Speaking of #3, when you’re in a bull market for so long, it’s common for investors to overestimate their true risk tolerance. But the price of investing is knowing that you’re looking at 20-30% losses during a recession. While investments should offer financial security, if numbers like that scare you, then consider reallocating your assets. But instead of selling when the market is down, wait until it improves to trade some stocks for bonds or swap some of your riskier small-cap stocks for less volatile blue-chip stocks. And if you have some extra cash on hand, consider buying low-priced stocks with long-term value, so you can sell them down the road for higher.

  5. Keep Up with Your Credit Score A consequence of tighter credit markets is stricter credit requirements. If anyone is going to get approved for a loan or credit card, it’s going to be the people who have the best credit. Make sure you’re paying monthly bills on time and keep older credit cards open. And try to keep open communication with your creditors to maintain a good relationship. They would obviously prefer to keep you as a customer — as long as your account is in good standing. So if times are tough financially, ask them how they may be willing to work with you to help you do so.

  6. Build a Strong Professional Network To be blunt, the people who get fired first during a tough economy are the most disliked or least connected, followed by the worst performers. To prevent yourself from being viewed in that light, make sure you have a safeguard of supporters willing to advocate on your behalf. Make a larger effort to grab lunch or coffee with colleagues, or check in more frequently if you’re working remotely. Personality and likability will be a big safety net if layoffs become inevitable at your company.

  7. Touch Base with Your Tenants If you’re a landlord, now is not the time to be completely hands off. The circumstances will affect everyone differently, including your tenants. Check in with them to see how they’re doing — are they still employed, has their family dynamic changed, are they looking to renew when their lease is up, or move out? The more you know about their plans, the better you can get a head start on preparing for what’s next. With interest rates skyrocketing, rental demand is often higher, but in a recession, unemployment rates often are too, which can affect your tenants’ ability to make monthly payments. So consider what you can do to ensure you're getting what you need from them, while keeping them happy and locked in during the tough times.

  8. Decrease Your Safe Withdrawal Rate Retirees — take a look at your current living situation and see how much you can reduce your withdrawal rate while still living comfortably. Let’s say you’re currently taking out 5% of your portfolio; can you manage with just 3-4% for six months to a year? By increasing your financial buffer, you can better protect yourself from a slump in asset values for as long as you need to. And if you’re not retired, just live within your means! Make it a habit even when things are good to spend smart and keep your debt low. And now as gas and food prices increase, look for categories where you can cut back to help minimize the difference. Maybe it’s dropping a streaming service you don’t use as much as others or making more coffee and meals at home versus going out every weekend. The little changes will add up.

Checking off as many of these items as you can is the best way to protect yourself from today’s unique financial climate — and a potential recession that may result. If you’d like to discuss more ways to recession-proof your finances, give us a call at K Wealth Advisors today. We’ll be more than happy to schedule a GoodFit meeting to discuss your goals and options. #KWA





Insightful Planning to Live Your Best Life. #IPtLYBL


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