5 Ways to Get Ready for Worse Times Ahead

One of the questions I get asked most frequently by people who know that I blog about money is how to prepare, generally or specifically, for things to get worse.

Most of us want to believe that things are looking up and we’re coming out of the recession. That may well be the case, but based on the questions I continue to get, there’s a small part of us that’s scared to pieces and looking for advice on the “what ifs.”

While I generally try to keep things positive at Fiscal Fizzle, let’s make an important and useful assumption just for today–that things will get worse before they get better. Even if we’re already out of this recession, it can be a lesson in preparation for future economic downturns.

These are long-term principles. They are beneficial whether or not you believe worse times are coming, and are life-long ways to have a better relationship with your money.

1. Contract & Hoard

There’s a good reason why this point is first–it’s the best mentality to adopt when you think bad times are ahead. However, contracting your expenses and hoarding your income doesn’t mean you shut yourself inside and spend nothing.

You have to strike a delicate balance between being able to continue living somewhat normally and diverting a larger percentage of your income to savings. Frugality is a keyword that comes to mind immediately.

2. Create a Leveled Contingency Plan

There’s a great post at Bargaineering from a few weeks ago that discusses conducting financial fire drills–preparing for potential pitfalls through planning and practice. I think this is a great way to prepare for singular events that affect your money.

When thinking about a contingency plan for a potential or worsening recession, many people get stuck with thinking in absolute terms–“now I’m doing well, tomorrow I will be doing poorly.”

Life rarely works like that–unlike a sudden catastrophic event like a medical emergency or accident, recessions affect us more like a slow decay–eating away at the tree, rather than chopping it down.

I suggest a different, more layered way of looking at your plans. Think in terms of stages–what happens if I get a 10% pay cut…what if I get laid off? What if both of us get laid off? What if we lose our house? Boil down to the most catastrophic (likely) “bottom” and stop (no sense in getting yourself really depressed).

3. Cherish Diversity

Diversity in all things is usually a good idea. When it comes to your money, it’s almost vital.

Income diversity might consist of multiple streams of income–regular salary, investments, side hustles. It might also come in the form of both parents working to mitigate the threat of the single working parent losing their job and cutting off 100% of the family’s income.

Diversity can be other things, too–something as simple as shopping at two grocery stores to take advantage of both store’s sales, or using multiple tools to show you different aspects of your money.

4. Increase Options; Decrease Commitments

When incomes start falling, your first line of defense is cutting back on unnecessary expenses. Anything that could be considered a commitment (loans, service contracts, leases, etc.) will stand annoyingly in your way.

If your income is questionable or your savings are scarce, stay away from anything you can’t “dump” when the winds of change shift. Great “options” are month-to-month contracts and paying cash!

5. Think Classic & Traditional

If people were doing it 50-100 years ago, chances are it was a frugal and effective way of doing things. Think about it–cooking at home, conserving resources like water, and saving a large percentage of your money–it used to be that these were unquestionable ways of living.

People were also more self-reliant. Families lived together, they grew their vegetables in the back yard, and learned to re-use much of what we consider trash today.

Somewhere along the road, we’ve lost our way. We decided that an obsession with convenience, speed, and consumption was somehow sustainable. Now we’re getting our butt kicked for it.

Emerging from The Tunnel

As we all hope, the light at the end of the tunnel may be very close. Whether times turn for the worst or for the better, the strategies I’ve outlined help you stay prepared for what’s coming.

Assuming we’re emerging into better times, you may not need many of these strategies to survive, but they will not only put you in a better position to emerge strong, but will prepare you for the next inevitable downturn (more on that another day!).

Photo credit: Joe Shlabotnik via CC2.0

12 thoughts on “5 Ways to Get Ready for Worse Times Ahead

  1. Good points! I really like the income diversity idea. If you can find a way to turn a hobby into a business or make money on ebay etc. those are all viable ways to help bridge the income gap during rought times!

    1. Not only during the bad times, but it’s also a great way to put away a little extra during the good times so you’re ready for any unforeseen circumstances.

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  3. I try to keep my sources of income relatively diverse in the types of work I do, and who I do it for. I also like your point about reducing obligations. The fewer obligations you have, the more options you have for your money.

    1. I love options! So much in fact that I’m planning to write a whole book about them. More to come…

  4. The “things r gonna get worse” crowd are living with their heads in the sand, sorry. NOTHING could be worse than what we’ve experienced over the past 18 months, and for that, I’m excited.

    This is one big bull market, and next year will be a job market BONANZA since firms over fired in the downturn.

    1. Based on my own experience at work, I think we are in agreement that things are getting better. I definitely hope we can experience that “bonanza” you speak of soon!

      On the other hand, I have to say I disagree that this is the worst things could possibly get. Having grown up overseas and in contact with a lot of friends and family both there and in other parts of the world, I count myself and everyone else in the modern world as pretty darn lucky. Not to mention the survivors of the Great Depression.

      I don’t know about you, but I can still put food on the table. That’s a lot more than many people can say right now.

      Anyways, my two cents…

      1. Wojo, I’m pretty confident the US won’t regress to the point of a 3rd World Country. Gotta have faith!

        What industry do you work in? Bc, Goldman paying 600-700k/worker this year doesn’t happen in a “worst case scenario!” 🙂

        Keep the faith everybody.

      2. Architecture. I guess I’m a little biased with the recent downturn, as we’ve been severely affected.

        I don’t believe we’ll ever regress that far, as you point out. But that is the reason why I think I am so thankful for what I have…

  5. Great post – I like your point about tough times usually coming upon us slowly, rather than all at once. Even if it seemed like the financial crisis hit all at once in Sept. 2008, it really didn’t. That was a major slide, but there were other slides before and after that, too. Same with personal finances – negatives can come in threes, or they can come in stages – good to stay flexible and keep planning as you go.

    1. Interesting observation about the “threes.” Although things don’t often happen “all at once,” they do seem to happen in bunches, don’t they?

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