Self-Made Millionaire’s Money Rules: How to Thrive in a Potential Recession
In the wake of the Great Recession, many financial minds reevaluated their strategies. One such mind belongs to a self-made millionaire who achieved financial independence and retired at 34, after dedicating 13 years to banking giants like Goldman Sachs and Credit Suisse. As signs of another recession loom, it’s crucial to adopt specific financial strategies that can help you weather the storm.
Understanding the Current Financial Climate
While the United States isn’t officially in a recession yet, there are unmistakable warning signs on the horizon. Economic uncertainty often prompts consumers to tighten their belts, leading to decreased spending, business slowdowns, and potentially, job losses. Despite these challenges, there are numerous proactive steps you can take today to secure your financial future.
My Top Money Rules for Navigating a Recession
1. Address Maintenance and Repairs Immediately
As inflation threatens to escalate, locking in prices on essential repairs is a smart play. This means tackling any maintenance issues you’ve been postponing.
- Car Care: Attend to significant maintenance tasks such as brakes, tires, and batteries now. After warranties expire, unexpected repairs can rapidly drain your budget.
- Home Updates: If your roof or appliances are nearing the end of their lifespan, consider replacements before prices climb.
- Health Matters: Schedule appointments for checkups or procedures now, prior to any potential rises in insurance costs.
2. Build an Emergency Fund of 6 to 12 Months of Living Expenses
In uncertain times, cash on hand provides security. Aim to save six to twelve months’ worth of living expenses in a high-yield money market fund or Treasury bonds. This way, should you face layoffs or unexpected costs, you possess a financial safety net that remains unaffected by stock market fluctuations.
3. Clarify Your Investment Goals
Your time horizon significantly influences your risk tolerance. If you’re investing for retirement a couple of decades away, remain steady in your strategy. Conversely, if you anticipate needing cash in two years, it may be wise to shift some funds into more liquid, conservative assets like short-term Treasury bonds or money market funds.
Defining your investment objectives can help maintain your discipline even during market turbulence.
4. Broaden Your Career Perspective
Now is the perfect time to enhance workplace relationships and network across your industry.
- Clearly articulate your unique strengths and the value you bring to your organization. Ask yourself: How can your skills translate to other sectors?
- If you identify transferable skills, explore a pivot to a more stable industry while opportunities are still available. Remember, it’s easier to secure a new job while employed.
- Amidst uncertainty, kindness and generosity with your expertise can open surprising doors to new opportunities.
5. Cultivate Alternative Income Streams
In these turbulent times, relying on a single paycheck can be risky. Consider diversifying your sources of income by exploring multiple income streams. Here are some ideas:
- Rental Revenue: Real estate can provide substantial income during downturns.
- Investment Dividends: Stock dividends can offer reliable income.
- Freelancing or Consulting: Utilize your expertise in various capacities.
- Participate in the Gig Economy: Engage in rideshare services or delivery options, or take on side hustles that utilize your skills.
To stay resilient, consider focusing your efforts on recession-resistant industries like healthcare or education, where demand remains steady even in downturns.
6. Seize This Chance to Invest in Your Future
Typically, stock markets dip during recessions, creating potential opportunities for savvy investors. Instead of avoiding investments, look to dollar-cost average your way into stocks for retirement or your children’s education. Boost your contributions to your 401(k), IRA, or 529 plans to capitalize on these lower prices.
However, always maintain at least six months’ worth of living expenses in cash before making additional investments.
Prepare, Don’t Panic
Recessions can challenge the most disciplined of planners, but they also unveil opportunities for those who stay calm and proactive. Historically, recessions last between six months and two years, averaging about ten months since WWII. By shifting your mindset from fear to strategy, you can tighten expenses, bolster savings, diversify income, and lean into long-term investments.
With careful planning and a forward-thinking approach, you can not only survive an economic downturn but use it as a launchpad for lasting financial growth.
Want to transform your career into something more rewarding? Consider taking CNBC’s How to Change Careers and Be Happier at Work course, where you’ll gain insights on networking, resume revamping, and confidently stepping into your dream career.
Sam Dogen, founder of Financial Samurai, is dedicated to helping others achieve financial independence. His latest book, “Millionaire Milestones: Simple Steps to Seven Figures,” guides readers on their journey towards wealth.
