How to Prepare for a Recession

It is likely that the U.S economy is heading towards a recession in 2008. We may even be in a recession now. But what does this mean to you? Are you prepared for a recession? How do you survive in an economic downturn? In my opinion, if you aren’t prepared for the current recession, it may be too late. So start now and prepare yourself for the next recession. That’s exactly what I did.

The last recession in the U.S started in March 2001 and ended November 2001. I was not prepared. I nearly lost my job. I had a very small emergency fund. I had debt. I had a mortgage. I had a family to support. I was stressed and worried. As Harry S. Truman said, “It's a recession when your neighbor loses his job; it's a depression when you lose yours.” Fortunately I didn’t lose my job, but I vowed to never put my family in that position again. Below are the steps I took to prepare myself for the next recession.

I improved my job security. During the last recession, my company had several rounds of layoffs. To make the situation worse, the small community I lived and worked in had very few other professional opportunities. Rather than leave my company, I found an opportunity in a different department and relocated to a major metropolitan area. This allowed me to stay with my company and protect myself from future downturns. I still work for the same company and I’m very happy with the moves I have made.
I paid off debt. The only debt I had in the last recession was two car notes and a mortgage. But I also realized I would default on these loans quickly if my income suffered. I no longer have debt other than a mortgage.
I downsized. I downsized from two vehicles to one. Surprisingly, sharing vehicles with my wife is only a small inconvenience. My home is also much more affordable after relocating a second time.
I cut spending. I haven’t gone overboard but I’ve always been frugal. I’ve rejected temptations to spend on large ticket items. I've also avoided the "Keeping up with the Joneses" mentality.
I built an emergency fund. My emergency fund during the last recession would have went dry after only one month of unemployment. Due to my downsizing and spending reduction efforts, my emergency fund is now comfortably more than one year of living expenses. This might be a little extreme, but it feels comfortable and I’m currently earning approximately 5% on this money.

I recommend my readers take the necessary steps to prepare for the next recession. Start today and don’t panic. Put an action plan in place and work diligently to make it happen. Be consistent and practice patience. My plans took several years to come to fruition and it’s always a work in progress.

I’d like to hear what others are doing to prepare for the next recession. Please feel free to comment.