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July 11, 2022

Preparing for a Recession: Our Family’s 5 Step Financial Plan

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It’s no secret that it’s been a bumpy few years for the economy–COVID, lockdowns, inflation, you name it. With growing talk of bear markets and recessions, it’s time to share our family plan. It’s not ironclad, but these are the five steps we are taking while preparing for a recession.

We hope that by sharing our ideas, you can get some ideas to support your family as well!

1. Shore Up Your Emergency Fund

Nicole and I are closely looking at our budget and our spending this month because we want to tighten things up. While budgeting isn’t our absolute favorite thing to do, budgeting certainly isn’t a bad word or a bad thing! In fact, keeping a close eye on where our dollars go gives us a great deal of freedom in the long run.

In stabler times, we might use the extra money that we find in our budget to funnel toward sinking funds, such as a vacation, or to level up our investing. But as part of preparing for a recession, the first thing we are doing is taking stock of our emergency fund.

While there are plenty of people who are paid good money to predict when the next recession will happen and how it will impact us, the truth is that no one knows. We hope our family’s income won’t take a big hit, but we simply don’t know.

If you’ve taken the plunge into entrepreneurship like I have, it can be even harder to predict what income will look like. After all, my income already varies from month to month.

We’ll plan a budget party to review our money situation and see if we have any funds that we can use to beef up our emergency fund. We still won’t know what to expect exactly in this recession. But knowing that we have some extra funds to cover the unexpected offers us some real peace of mind.

2. Continue Investing According to Plan

Even though the stock market has dipped into a bear market and it looks like a recession is coming, we are investing in the stock market like any other day. 

Nicole and I are long-term investors and we know that this situation is eventually going to get better. We haven’t lost any money really. Instead, this is what is called a “paper loss”. You can see the loss on paper–or on the computer or phone screen.

But we keep telling ourselves that we only lock in these losses if we sell. And we’re not selling anytime soon! Instead, we are going to stay the course as much as possible.

For us and many others in the personal finance community, that means leaning on index funds. We aren’t trying to time the market, and we aren’t trying to pick a handful of stocks that will do the best in the recession. Instead, we are keeping our portfolio diversified and sticking to our investing plan.

It definitely takes a mental pep talk or two, but we really are trying to approach this as an opportunity to buy more shares at a “discounted” price. We are also exploring other options, including I Bonds.

If you’re struggling with investing while preparing for a recession, check out our chat with money expert Meghan Rabuse about investing during tough times.

3. Reduce Your Expenses, Not Your Happiness

If you’re working on preparing for a recession, you likely know that it’s important to cut back. But we’re here to remind you to be strategic about this. After all, you want to reduce your expenses, not your joy.

Start With the Easiest Expenses to Cut

One easy way to do this is to track your spending and then do an audit. Start by trimming the low-hanging fruit.

Do you pay for monthly subscriptions or upgrades that go unused? Cancel them and then reroute that money. You can send it to your emergency fund, stash it in savings, or even consider investing more (if that aligns with your plan!).

Another easy expense to slash from your spending is to eliminate what you don’t remember. If you notice any purchases on your credit card that you don’t remember making (but you know it’s not fraud!), then there’s a good chance it was an example of mindless spending or an impulse buy.

Shopping from lists or keeping things in your shopping cart for a few days can help curb spending on things that never mattered much to you anyway.

Make Food Savings Simple and Fun

While it feels like inflation is eating away at everyone’s budget, you can try other tricks too. These strategies might help bring down your grocery expenses:

  • Meal plan and prep. We all know that meal planning can save time and money. It can also save you a boatload of time. Try to make Sundays the day where you prepare your meals to eat during the week. This way you’re not spending so much time preparing daily meals (and all the dishes that go along with them!)
  • Explore alternative dishes. Meat costs got you down? Consider making Meatless Monday a thing. Adding one or more meatless meals to your menu rotation each week can help you save big. You can also explore other options like switching from ground beef to ground turkey. (Doing this has definitely helped lower my cholesterol too!)
  • Stock up if it makes sense. Before you run out and buy a membership to everyone’s favorite warehouse store, make sure stocking up makes sense for you. Do you have a place to store everything? Will you use it before it expires or goes bad? Food waste is a huge budget buster. Making sure you are able to use everything you buy can stretch your dollars more than any sale or discount can!
  • Make meals fun. If part of scaling back means eating out less, find ways to make cooking at home fun. I’ve found alliteration to be fun in our house … Taco Tuesday is a classic go-to, and we’ve even made Wednesdays — “hot tub and hamburgers” after getting our hot tub last year. And then after we watch an episode of Malcolm in the Middle with the kids. They love that show! You can also let everyone take turns planning their favorite meal. Try new recipes together. Experiment with snack plates and “refrigerator challenge it” by cleaning out the fridge and making a meal with what you have. There are so many ways to make eating at home anything but ordinary!

As you look to tackle categories like food, you want to make sure that you’re balancing savings with enjoyment. Why? Because then you will actually stick to your new spending plan!

Hill Family Case Study

It’s no secret that staying connected with mobile devices is more of a necessity lately. As kids get older and become more independent, families need to stay in touch. And if you’re a digital entrepreneur? You can literally make a living from your phone.

But just because cell phone service is important, doesn’t mean it has to be expensive. After hearing a lot of hype about MVNO (mobile virtual network operator) phone service compared to the big-name carriers, we decided to explore some options. We dug into the different operators (think: Google FI, Mint, Tello, and more) and their plans. Then, we finally decided on Tello.

After our family switched to Tello, we found we were saving a considerable amount of money each month…and our service improved! You can’t beat that! We were then able to use that savings to bulk up our emergency fund and have more fun. Remember if you manage to reduce your expenses, be mindful of where that money goes…so it doesn’t get spent mindlessly!

4. Earn More (Without Burning Out)

Part of preparing for a recession means cutting expenses. Another key part is to secure your income. Depending on your situation, that could mean one of three things–or a combination of them.

Make Yourself Invaluable At Work

For a lot of millennials, the Great Recession is forever burned in our brains. Many of us were just starting our careers…or trying to get them off the ground. If you lost your job or couldn’t find work then, I probably don’t even need to mention this piece of advice.

But I’m going to say it anyway. With a recession on the horizon, job cuts are going to happen. Companies will scale back and people will lose work. You want to do what you can to secure your position.

That doesn’t have to mean doing extra work. Instead, you want to make sure that you get credit for the work that you currently do. And you do the work to the best of your ability. One way to do this is to meet with a supervisor to take inventory of all that you’ve accomplished as a team and individually this year.

Check out the process I used to ensure I was thought of as invaluable at work and how I increased my salary from 5-figures to 6-figures.

Consider a Side Hustle or Two

A recession might seem like a funny time to explore side hustling. But the truth is that there is no better time than now to generate multiple streams of income.

I know what you’re thinking, though. You’ve got a job, and you’ve got a family. How are you going to find time for something else? Side hustles don’t have to be big time commitments, and they don’t have to bring in thousands of dollars a month to be valuable. Start with our list of some of our favorite side hustles you can do from home.

For more inspiration on setting up a side hustle, check out our interview with Daniella Flores, a side-hustle expert who loves to share advice on getting started.

Prepare for a Pivot

If we learned anything from the last recession, it’s that different fields are impacted at different times. Some companies have already started laying off employees. Others will hold out as long as they can simply because the impact of the recession won’t be felt in those areas right away.

In order to keep preparing for a recession, you want to be aware of the possibility that you might lose your job. If that happens, don’t be afraid to pivot.

In fact, it could be the best thing that ever happened to your income.

In a recent report, nearly half of the people surveyed said that they got a pay boost when switching jobs. While no one wants to think about being pushed out of their current role, you want to keep your eyes open to the possibility. You also want to remember that job-hopping is a powerful way to grow your income in many situations.

5. Be Generous Where It’s Needed

It’s very easy to get wrapped up in our own balance sheet. But some common advice is to zoom out. That’s a good perspective on viewing the stock market, and it’s an even better way to look at the world.

We know that despite a looming recession, we are in a good place financially. That’s why preparing for a recession actually means being as generous as possible to us.

There are so many different issues people are facing that a recession will only make it worse. For instance, the World Food Programme estimates that over 800 million people are facing hunger globally. Additionally, the USDA estimates that nearly 40 million Americans are facing food insecurity.

We’re fans of Feeding America and their ability to feed our neighbors when it’s needed most. And now it is definitely one of those times.

Our son Calvin (8 years old) donated $14 from his Give Jar to Feeding America and Nicole and I followed his lead and donated as well. This allowed us to have a conversation about how important it is to take care of our neighbors in need if we can. 

Zoey (10 years old) donated her money to our local animal shelter. She got back a nice note saying that donations have been very slow lately so Zoey’s $20 was very appreciated. 

If you have the means to give during this time, do so. If not, find other ways to give. You can consider donating unused household items and clothing that are in good condition. You might also consider volunteering your time or expertise with local organizations that are doing work you support.

We find this perspective to be truly helpful when considering what a recession might mean for our community and our country.

Final Thoughts on Preparing for a Recession

Preparing for a recession is not likely to be anyone’s favorite part of financial planning. But it’s crucial! Take some time today to consider how you might scale back on expenses or increase your income to boost your emergency fund and increase your savings.

Having a plan for tough economic times can help your family struggle less if a recession actually hits. Plus, that same plan can help you sleep much better when times aren’t tough. Knowing that you have a plan to take care of your family and others is a key part of strengthening your family tree.


How are you preparing for a recession? Which of these steps makes sense for your family?

Please let us know in the comments below.


 

Andy Hill

Andy Hill is the award-winning family finance coach behind Marriage Kids and Money - a platform dedicated to helping young families build wealth and happiness. With millions of podcast downloads and video views, Andy’s message of family financial empowerment has resonated with listeners, readers and viewers across the world. When he's not "talking money", Andy enjoys being a Soccer Dad, singing karaoke with his wife and watching Marvel movies.

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Marriage Kids and Money Podcast

About Marriage Kids & Money

The Marriage Kids and Money Podcast is dedicated to helping young families build wealth and happiness.

With over 300 episodes and counting, we've interviewed millionaire parents, award-winning authors, and personal finance experts to help you find your version of family financial independence.

On Fridays, you'll hear me and my wife Nicole discuss life, money and relationships on our show "Bread & Wine".

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