That is a lesson worth remembering now: Diversifying your income streams can help you feel less vulnerable in a recession. (Just don’t get caught up in a multi-level marketing scheme, which tends to gain traction in times of financial uncertainty.)
For those who have a steady income, it’s wise to start shoring up those cash reserves. Particularly if you feel any tremors in your industry.
One strategy I use is building a “bare essentials budget.” It’s a way for me to know the bare minimum my household needs to get by each month. You strip away any non-essentials and focus on the cost of housing, utilities, transportation, pet/childcare, medicine, insurance premiums, minimum monthly debt payments and food. Knowing this number helps inform what I need to net after taxes.
You should also continue (or start) building an emergency savings fund. Take your bare-essentials budget number and multiply it by the number of months you’d want covered if you lost your main source of income. Three to six months is often the rule of thumb, but keep in mind that it typically takes a few months to find a new job.
Another consideration is your wider social safety net. Take stock of who in your network can be of assistance. Are there family members or friends you can move in with or who could provide a short-term loan without financially compromising themselves? Millennials living in parents’ basements became the cliche of our generation, but in reality, it made the most economic sense for many people.
How strong is your professional network to get help finding a new job? Would you be eligible for unemployment if you lost your job or main source of income? These are the questions to start thinking about.
Finally, don’t forget about your mental and emotional health. Your bare-essential budget might need to include therapy — that is essential to many and shouldn’t be put on the back-burner until the larger economy stabilizes. If living with family members isn’t a healthy option for you, it’s okay to pause on other financial goals in the short-term (e.g., making retirement contributions or aggressively paying off debt) in order to funnel money toward a workable living situation.
Recessions, much like a pandemic, are scary and uncertain times. No one economic downturn will exactly mirror its predecessor. All we can do is focus on what is within our control and brace ourselves for what may come.
Erin Lowry is a Bloomberg Opinion columnist covering personal finance. She is the author of the three-part Broke Millennial series.