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- I’m already living like we’re in a recession to prepare for what might happen next year.
- As an entrepreneur, I have to be extra careful, so I’m increasing my emergency fund and spending less.
- I am also looking to develop an online course to generate more passive income.
At the end of each year, I spend a few days taking stock of my finances. I start by looking at all the spending and investing mistakes I’ve made throughout the year. Then I analyze how much I was able to save on a monthly basis by sticking to a budget and how well I achieved my annual financial goals.
One thing I’m doing differently this year is trying to find ways to recession-proof my finances in the event of a significant economic downturn in 2023.
Although I’ve made significant changes to my spending this year due to inflation, there are things I can do now in case a recession hits and my income as an entrepreneur and freelancer changes drastically. .
Here’s how I’m changing my financial strategy now by pretending we’re in a recession so I can prepare for what might happen next year.
1. Limit vacation spending
Every year, my spending spirals out of control during the holiday season. Even though I stick to a fairly tight budget throughout the other months of the year, starting in October, I find that I spend a lot more than expected.
Last year, I spent a couple thousand dollars on vacations, gifts, and things I didn’t really need but found on sale during Black Friday.
This year, I decided to limit my vacation spending to just $500. I plan to use this money for travel and gifts, supplementing the cost of items and plane tickets with credit card points. To make sure I stick to that number, I created a spreadsheet with everyone I want to buy a gift for and what I want to buy, and used websites like Price. com to track prices so I can buy it at the lowest cost. I also planned trips in advance and was able to find deals on airfare using tools like Skyscanner.
2. Create a tight budget for 2023
If we go into a recession, my biggest fear is losing revenue and customers as an entrepreneur and freelancer. If brands and companies start cutting back, they might not want to work with me anymore.
That’s why I’m starting to create a budget for 2023 as if my salary was 25% lower than it is now. I chose this number because it is a good base to start planning. If I end up losing 50% of my salary, I can make a smaller adjustment to this new 2023 budget.
Seeing my monthly income this way helps me plan ahead for the possibility of getting a lower than normal monthly income while changing my spending habits ahead of time. If nothing big changes and I don’t lose some of my income to the recession, that extra money can help achieve other financial goals, like investing in new assets or making larger contributions to my fund. of retirement.
3. Add extra money to my emergency fund
To avoid going into debt in 2023, I want to make sure my emergency fund is in good shape. Since I was laid off from my full-time job in 2015, I have aimed to build an emergency fund with at least six months of expenses.
To prepare for this, I will contribute at least 10% more per month to my emergency fund for the first six months of 2023, drawing this money from whatever I can save by sticking to a diet. tighter than normal budget.
Savings rate today:
4. Find new sources of passive income
Over the years, I have been eager to incorporate additional passive income streams into my financial portfolio. Although I already have a few that generate regular income every month (from dividends to affiliate income from products that I share on my social media and website), I want to bring in at least two new sources of income to prepare for a recession. That way, if my income changes as an entrepreneur and as a freelancer, I can rely on steady cash flow from other passive income sources.
Right now one way I’m working to generate more passive income is to develop an online course that will live on my website and be marketed to my social media audience on a weekly basis as a way to generate income passive. I’m also looking for ways to invest in real estate without buying a property myself and using platforms like Fundrise instead.
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