No, we can't 'recession-proof' our finances
but we can mitigate some of it.
It’s been a week. I know it’s only Tuesday (or Wednesday depending on where you’re located) but it has been a week.
Mostly because I spent the last two business days trying to get paid on a project I’m working on. It reminded me again how we have to be advocates for our own income, even if the teeniest part of me wondered if I was being a jerk about it.
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(The rest of me quashed that thought pretty fast with a stern reminder that I am my client.)
Anyway, that’s not the point of this week’s newsletter. Instead, I chatted with several experts about the question, “Can you actually recession-proof your income or your investments?”
Short answer, no. Longer answer, yes, we can do some things. However, I’m not sure you’re going to like it.
I dislike the use of ‘recession-proof’ as a term because of the numerous articles about what you can do to make your money stretch further isn’t ‘recession-proofing’ your money. To proof against something is to be so strong or so good that you’re not affected by something bad.
I don’t know about you but most of us are affected by current inflation. Your income probably hasn’t increased along with your variable mortgage payments. Food costs have increased while income hasn’t matched inflation. I chose to go to a local fruit and vegetable place instead of my local grocery store because there was a one-dollar difference in the cost of asparagus.
So we can’t ‘recession-proof’ our finances but we can mitigate the effects of what’s happening right now to an extent.
Shay Steacy, an advice-only certified financial planner says that’s where people need to think about what they may have to give up or cut back on without feeling deprived in the short term. She advocates an approach that doesn’t immediately require an immediate emotional response and extreme slicing and dicing of your budget but more active reflection about your spending patterns.
“It's not about necessarily itemizing and putting everything together, but seeing where you spent it and thinking about whether you'd spend that money that way again,” says Steacy, who suggests looking at the last six months.
After that, if it gets to a point where bigger decisions need to be made, then it’s time to look at drastic options. One can be to extend the amortization on your home. Steacy says that for the right person, it can free some needed cash in the immediate and when things settle, they can increase the payments in the future.
She also advocates a longer-term view. “I get clients to look at their cash flow now, but also what it looks like in a year? What does it look like in three or four? Are daycare costs gone or reduced? Maybe someone does have a car payment now, but it's gone in a year,” she says. “People can do a timeline of future cash flows, maybe in conjunction with a decision like extending the amortization on your mortgage.”
That helps put things in perspective. It’s about looking at bigger picture and at future cash flow. “Maybe we're tight now but we can change that in X amount of years.” It's short-term pain for long-term gain.
I did say you probably won’t like this.
I’m not going to leave you hanging without some tips.
The first is to build up your emergency fund as much as you can.
Consider getting a line of credit. It shouldn’t be your first resort but something to consider just in case of job loss.
Pay down debt as quickly and as best as you can.
I know a lot of advice is about finding a side hustle. If that is something you can do, great but again, liveable wages vs. 50-million jobs, burnout, monetizing your hobbies and hating it, etc. etc.
Finally, as all the advisors said, don’t panic. Yes, this is easier said than done but recessions happen and not all are as dramatic as the pandemic or 2008 recession.
Now you’re probably wondering why I haven’t talked about investments. That’s coming, probably next week as this issue got a little long. It was fun though, because when I put out a call about whether you can recession-proof your finances, wealth managers, both on and off the record, straight up said no.
Tune in for that.
So I have a book based on The Budgette! It’s Money Myths: A Finance Guide for Solo Earners and is available here or as an audio book.
This week’s readings:
Ottawa touts $8.9-billion plan to help Canadians battered by inflation, as critics pan announcement as ‘unacceptable’ (Toronto Star)
Canadians delaying retirement amid surging inflation, poll finds (Global News)
Pandemic learning gaps have parents digging deep to put their kids in private school (The Globe and Mail)
Why can’t women in the UK afford to buy their own houses? We ask an expert (The Guardian)
The Plain Bagel discusses the crypto crash. (The Plain Bagel, YouTube)