With record high inflation and rising interest rates, an economic recession has been the subject of many conversations lately. Now with two consecutive quarters of a drop in GDP (gross domestic product)—the benchmark many economists use to gauge a recession—the possibility of a serious economic downturn isn’t just fodder for conversation anymore. It’s time to get serious about protecting your finances for a recession. Here’s how you can make sure you’re prepared.

Individual:

Build Up Your Emergency Fund It’s widely recommended to have enough savings to cover three to six months of living expenses. The specific amount will depend on your circumstances. For instance, in today’s uncertain economy, you might feel it worthwhile to aim for more than six months. It might seem daunting, but don’t undervalue the effectiveness of small contributions on a regular basis. You can also think about automating your savings contributions for a set-it-and-forget-it approach. Whichever way you go about it, consistent contributions to an emergency fund help to build positive saving habits that will carry into the future. Pay Down Credit Card Debt Focus on paying down any high-interest debt. Not only will this help you be more prepared should you get laid off during a recession, but credit card APRs are rising in response to the Federal Reserve’s rate hikes. Knocking out debt could free up critical breathing room in your budget that you could use to boost your emergency fund. Identify Ways to Reduce Expenses Start looking at all the ways you spend money, and identify ways you can scale back on discretionary spending (services or items that aren’t necessities—vacations, dining out, cable, spa treatments, etc.). Typically, the guidance is to spend no more than 30 percent of your net income on discretionary purchases. Think about creating a monthly budget in order to stick to this guideline and ensure you’re not overspending. Review your insurance coverages, we generally reccomend one shops insurance coverage every few years [2]. Given our high inflation it is a good time to revisit the replacement cost of your vehicles, home [including vacation or rental properties] and other goods. Review your coverage amounts and costs. Household Supplies Take an inventory of household supplies, food for family and pets. How many days of supplies are on hand ? Consider increasing non perisable goods, canned items, baking supplies. It may a good time to purchase a freezer and stock it, this may also help stay ahead of inflation by providing a longer time period to shop for sales. Stock up on items that are non perishable such as coffee and tea. Medicine Given the increasing shortages, it may be prudent to increase needed medications on hand, further most insurance companies, including Medicare will provide 90 day supply for the 1 month deductible if one orders thur the mail order pharmacy. Stay Invested It’s tempting when the market is as volatile as it’s been recently to think about cutting back on 401(k) contributions or selling stock investments. Keep in mind, however, that you’re investing for the long term. Stocks rise and fall all the time, and history has proven that bull markets (rising market conditions) last longer than bear markets (falling market conditions). Continue to invest to take advantage of dollar cost averaging. Rebalance Your Portfolio While you want to stay invested for the duration of a recession, you might consider rebalancing your investments. Depending on your age, risk tolerance, and investment goals, it may make sense to shift more investments into growth funds, which could potentially experience greater gains when the market rebounds. Be sure to keep in mind that money needed in the short term should not be allocated to these funds as they are high risk.

Business:

As many of you well know, the economy in Michigan is struggling as are most other states and other countries. So as business owners what can we do to weather the storm? Here are some ideas to get you and your business through tough times. Be Frugal. Watch your expenses. This sound obvious, but look at each expenditure and ask yourself whether it is necessary or not. Can you cut certain expenses without jeopardizing sales? Look through your product or service lines for areas that are not profitable. Clearance the unproductive inventory and evaluate the need for services that don’t return a profit. Set up a cash flow plan. On a spreadsheet map out each month’s income and expenses. Plan ahead of time how much you will spend each month. Call our office if you would like a cash flow form to work from. Business Practices. Set goals for working capital and cash. Watch for unplanned growth in inventory, especially as goods that were caught in supply chain bottlenecks are now breaking loose and arriving at your loading dock. Automation. It may seem counterintuitive to invest in technology on the cusp of a recession, especially with inflation running high, but improving your technology can help you cut costs and operate leaner into the future. Besides streamlining your operations and financial management, updated technology systems can help you leverage staff in a challenging labor market. Ask your staff for ideas on ways to save money. This will create an environment where they are partnering with you on ways to save, even if it’s just a few cents here and there. Everyone working together to clock out on time and turn off the lights will add up over time. Follow up on Accounts Receivable. Call after 30 days to collect your payment. Polite persistence pays. Emergency Fund. Use any extra cash flow to set up an emergency fund. The goal is to have 3-6 months of expenses in a business savings account. Pay down debt. A debt free business is as close to recession proof as you can get. Evaluate your pricing strategy. Can you hold your prices or do you need to pass some increases on to your customers. Go the extra mile with customer service. Give your clients and customers something to talk about. Think outside the box. In times of turmoil and chaos there are more opportunies. Be on the lookout for these, new market opportunies, new business process [virtual and in person]. Most companies pull back to selling just the basics when times are tough, but consumers can get the basics anywhere. Look for those unique products and services that will give your customers a reason to spend money. Growth. Grow real revenue, not inflationary revenue. To do this, factor inflation into your year-over-year comparisons. Focus on your most profitable business segments and consider exiting those that do not produce real growth. Evaluate your advertising. Is it effective? Look for inexpensive ways to get your company name out there. Additonal web sites, Facebook Market Place, Frontdoor, and direct mail.

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Or Book Your Consultation here: We service clients worldwide. Information presented is for educational purposes only. It should not be considered specific advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the adoption of any specific strategies. Be sure to consult with a qualified advisor and/or tax professional before implementing any strategy discussed herein. Be sure to have your specific situation reviewed prior to implementing any strategies. Winc. Inc is a licensed Enrolled Agent firm.