The 2021 Opportunity: How To Prepare For A Recession

The incoming recession.

What does that make you think about? More expenses? Unemployment? Lower sales volume?

These are some common connotations people have associated with this term. But if we had to sum up in a few words, it would be making less money.

Why?

Have you ever wondered how much control you have over your finances? Is the economy really determining how much you can or cannot make? There isn’t a universal law that magically stops you from generating income.

Ask those who are doing well, and they’ll tell you: recessions are the best time to grow financially.

There’s a division between those who see it as a limitation and others as an opportunity. But regardless of who’s right, it’s safe to agree we all would like to make more money. Why not learn what these people are doing differently?

How To Prepare For A Recession

Here’s the trick: recessions are only opportunities for those who prepare for it. If they catch you at the wrong time, they cost you a lot of money.

If preparation is one of the most obvious keys to success, why do recessions affect so many people negatively? Inertia.

It’s much easier to justify the current trend than anticipating the next one. If the economy is improving, you may miss or ignore all the evidence that proves the contrary. And when the markets take the opposite direction, we feel confused. People who don’t prepare for recessions don’t consider it even a possibility, or they give it too little importance.

As a first rule, do not lie to yourself. Until you accept that recessions are always coming, you won’t pay enough attention to prepare financially.

Let’s look at some ideas you should consider to recession-proof your portfolio:

#1 Follow the recommended financial habits

It’s not the first time you’ll hear us talk of emergency funds, liquidity, or budgeting. You can still get around without these, but you will make far more money using these tools.

None of them are easy to get. It takes time to build your savings account, financial intelligence to stay liquid, and discipline to follow a budget. They offer you the best chance to do well in recessions.

It’s never too late to start creating these habits. But if the recession is looming and you need a fast solution, you should look for something else.

#2 Keep your credit score high

Do you have a good score but fear that a downturn may put you at risk? You built that score so that you can help yourself with difficult times. If you haven’t stacked enough cash, borrowing money works too. Higher scores mean lower interest rates and more flexible deadlines.

If you’ve been building your score to make a big purchase, don’t do it right before a recession. Unless your emergency fund gives you confidence, you should wait for the downturn to finish instead.

When you study the causes of financial crises, there is almost always irresponsible spending involved. Overconfident borrowers take more than they can handle to profit from a good economy until it’s no longer sustainable. But people with excellent credit will always be welcomed on banks whenever they need money.

#3 Minimize your debt and non-essential expenses

Most people consider making money in a crisis harder. If you can barely keep with your debt today, what do you expect to happen when the economy gets tougher? That should give enough motivation: not only you’ll have to pay anyway, but it will cost more if you delay.

If you’re thinking of negotiating your debt, don’t wait until the recession starts to do it. If, despite the effort, you still owe money, limit it to cover minimum payments only. You will need that money for other investments, and paying back debt doesn’t earn any ROI.

But beware of various debt scams that are out there in the wild, especially when you want to get rid of debt fast and in a receding market.

Because of the price decreases, we recommend you give priority to investments over liabilities. Once you’re making more than enough, you can buy those non-essentials, preferably after the downturn.

#4 Buy universally valuable assets

You might recognize an incoming recession when the price of precious metals starts to increase. When people fear devaluation, they may sacrifice liquidity to preserve their wealth: gold as a popular choice.

We can’t tell you what asset is the safest to hold your money. But given the popularity, you could buy gold and expect to sell it in a recession for much higher.

It doesn’t necessarily have to be right. But because people think of gold as the solution, you can use that belief to your advantage. 

#5 Get additional sources of income

We can’t recommend the best asset to protect your finances because it doesn’t exist. You can find the most revolutionary idea, and it will still have its flaws.

Income streams can only make you so much money alone. But they are far more powerful together.

Although we’ve mentioned emergency funds, the ideal is to have emergency income streams, preferably passive.

If your career fails you, do you have a back-up plan to keep generating income? If you do, you can work on the other income stream when your primary one is down. You can work while it recovers without having to waste time or money.

Because of the income potential, we recommend you start adding active streams of income. Although they consume time like any other job, you can get them working in a week of preparation or two. Passive streams of income will make money while you sleep, but most may take years to build (unless you accept high-risk income opportunities such as trading).

If your stream depends on skill, money leverage, or social capital, you can almost guarantee lasting prosperity. Check our ultimate guide for passive income to learn how to achieve financial confidence.

#6 Recession-proof jobs

When things get tough, people will seek expert help. Understand your clients/employers will pay you proportionally to the value you provide, but you must communicate that trust first. Reputation doesn’t build up overnight, but once people know you as the specialist, they will hire you on recessions. 

The problem isn’t to save money. People are already losing money in a crisis. The question is, how can they get better results? You want to be that solution.

Aren’t you tired of blaming the economy? If you want to retake control, high-demand skills are the best way to do it. Because recessions increase scarcity, mastered skills become more valuable.

Not only can you attract more clients. Because of these skills, you could start your own business and make money. The problem is, it requires time and money, which is why you may prefer a job for the short term.

We’ve published a guide to recession-proof jobs describing the most admired skills that don’t require a degree. You’ll also learn what careers do well regardless of the economy.

What Should You Never Do In A Recession?

If you follow responsible financial habits, you may have already prepared for the recession without planning it. Being ready gives you an edge to make money from a tough market, but it doesn’t mean you cannot lose.

It doesn’t matter how well you’ve prepared if you make the following mistakes. Making the right decisions requires logical thinking. But when you see all those market moves in the short term, you may feel tempted to act emotionally.

When you look back, chances are you will regret the mistakes you made more than the lack of preparation. It’s unrealistic to expect to be ready for every scenario. What matters is the emergency plan you follow when things go wrong.

Stop yourself whenever you you want to sell to stop the loss.

When timing the market, risk management becomes essential. But as someone who prefers to hold assets, selling for less should not be an option.

Imagine your portfolio is worth 40% less today. That doesn’t mean you lost money. It’s simply not the right time to claim it yet. You can’t lose unless you get out of the market.

If you want to “recover,” you should add to the position when the price can’t go lower. Instead, buy and be patient until you break even. Later, decide whether you should keep the asset or drop it.

Follow the plan

Can you imagine the money you’d have made if you invested and forgot for the investment for a few years? The problem is, we become more impatient when we track the market way too frequently. You may find yourself jumping into opportunities too late or selling too early. 

Whether you’re focused on your career, business, or investments, make a non-negotiable budget. Every month, you’re going to invest money regardless of the situation, even if it’s less than 1%.

In the worst-case scenario, you lose that 1%. In the best one, you may 10X. In the long run, it becomes more expensive not to invest in your system than trying to save money or wait for the right time.

The last thing people want to do in a crisis is to spend more money. Common sense isn’t common practice.

Study historical patterns

History tends to repeat itself. We want to believe we’re making progress, but we often fall for a variation of the same mistakes. If your personal research reveals a pattern, you should trust it regardless of what emotions tell you to do.

It’s funny how we use the past to predict the future. Because things went a certain way, we expect the trend to continue forever. Even if we know it’s irrational, we can’t find any logical argument to think otherwise.

For example, you may have foreseen a recession and bought lots of stocks. Let’s imagine the bear market has ended, and a bull run is starting. People may react confused to the first price increase because they are used to seeing downtrends.

Thus, you sell on this price surge, thinking it will bounce back down. Had you looked at the yearly cycles, you would have waited a little longer.

You know you need to question your thinking when you fall for the trap “This time is different!”

Bullish VS Bearish: What It Means And Which One Is Better

Expand, rarely contract

If you feel worried about the next recession, you can be sure others feel that way. But if you do what everyone does, you’ll get the same results everyone gets.

It’s almost second nature to overvalue saving when the economy falls. Once sellers find that the same strategies no longer work, most will choose to cut expenses and wait for the market to recover.

What does this mean for someone who stays in the game? It means less competition, more clients. If customers change their priorities, sellers should do the same to secure the business.

Mass psychology works that way. When something is good, more people come in, and saturation makes it harder. When something is hard, more people quit, and the lowered competition makes it easier.

The only moment you may want to save is when building your emergency fund.

The Biggest Opportunities In A Recession

Please, don’t take this headline as fair positivism (although we believe the economy will improve long term). We’re not talking of seeing failure as an opportunity, or how losing money is good. Instead, we want to show you four business solutions and how some of them do even better in hard times.

It’s a lie that people spend less money on recessions. Most of you are already working hard and getting just enough money to cover your lifestyle plus emergencies. When things get tough, it’s time to make more money, or at least make the best use of the cash you already have.

That’s what we often get wrong. It’s not the quantity, but the direction. If people stop buying something, it may be because they consider it more important to spend more on something different. 

No matter the economy, you will find the following business solutions:

You may wonder why we’re even considering the first group. Isn’t it obvious that we should never open a business with no demand? The answer will shock you.

It may be common sense, but it’s the biggest mistake people make. Statistics show over 90% of businesses fail because there wasn’t enough market need. Maybe sellers got in because it’s a new niche or a fad. 

Lack of demand happens when you think of making money, not solving problems. Unless you’re irreplaceable and provide “scarce value,” you will lose money, whether you own a company or work for someone else.

Let’s look at option B: you do okay, but everything falls as soon as the tiniest thing goes wrong. Business owners may relate here as well: you study the market, find out what people want, and create your product. But as you launch it, market demand has changed.

What works today may not work tomorrow. You could offer a simple solution: bring more sales, more clients! But marketing may not be the problem.

Assuming you’re not selling trendy products, consider what factors could have lowered your profits.

You don’t need to be a genius entrepreneur to make money when things go well. Overconfident investors and impulsive buyers will support you as long as the future looks brilliant.

As for option C, things aren’t that different. It’s the inverse of case B, except that losses are more dangerous here. Why?

Look at economic history. 99% of the time, the markets have grown compared to 20 years ago. Data shows economic downturns, although impactful, aren’t nearly as massive as growth trends. Compared to the bulls, bear markets only last a few years (if not months). 

Can you see the problem with selling masks in 2020? You’d better make sure you have sold all your inventory by the end, or you’ll be stuck with products no-one wants anymore. Both recessions and economic booms have their opportunities, but that’s more focused on seeking trends than creating lasting wealth.

Getting rich quick is more often than not an illusion you are stalking. When you are in pursuit of that, then you become open to get-rich-quick scams that will keep you broke.

What about the option D? You could say that if something always sells well, its price doesn’t depend on the economy. Few things in this world have intrinsic value, and whenever things get tough, people appreciate them even more.

All business is about is solving problems. Recessions indicate new challenges, and whoever offers a solution will make money. Here is what people may think about when they fear the economy:

“Secure” investments

What would it feel like losing all your money, not because of your expenses, but depreciation? That would be like having worked for free. 

Before we can talk about profits, our focus is saving the money we already have. When currencies are unstable, guess where people are going to invest: physical assets. 

Gold, precious metals, or real state have real value. Although they fluctuate like any other asset, their price ranges are more realistic (thus protected from the market’s delusions). 

Some people consider precious metals less important, while others see it as a must-have in portfolios. By popular choice, people invest heavily in these assets to preserve their wealth on downturns.

We can’t tell you to what certain point this strategy is effective. But if you could buy enough of it before the recession starts, you could profit a lot from selling during demand spikes.

Business Services

Hard times may require to cut off expenses. But wouldn’t it be better to spend more on investments that have already proven successful?

Most people will regret not spending on recessions because of how low prices are on these times. Once you have enough to secure your sources of income, you may want to buy as much as possible.

In a good economy, the confident buyer may seem financial services unnecessary. But in hard times, people are looking for experts to help them boost their income.

By correction, we mean clients will prioritize results over everything else. How many clients have you helped? How long have you been in business? How fast do you deliver?

It’s not surprising that 2020’s downtrend has led more people to look for side hustles and start businesses. Some people have never made money online until recently.

Expect your customers (or employers) to be more selective. 

Education and consulting

When the old way no longer works, it’s time to look for new solutions. It’s so easy to get comfortable in what works today that we under prepare for market adversity. 

Luckily, people reconsider education when things start to go wrong. After they accept change and assume responsibility, they will seek help to find a solution.

If your career involves educating people about personal finance, economic hardships will make your content more valuable. It’s an opportunity to get new clients and work more with the existing ones.

But because people are fearful of losing money, they will not spend unless they trust you and the results you promise. Don’t wait until the last moment to build relationships.

Firing and hiring

You may have heard of this paradox before. If you don’t have enough skills, few people will hire you. But if you specialize too much, fewer people can afford you.

It may sound like we have fewer job opportunities, but it could mean the opposite:

As a beginner, you focus on building rapport and trust in relationships. As an expert, increase your exposure to find the clients who are already looking for you. Don’t say no-one is hiring. To find your opportunity, define your ideal client first.

Wrapping Up

There’s a lot of truth when people say the best opportunities are born in recessions. The question is, will you keep doing things the old way or adapt your strategy? 

Don’t get us wrong. There’s no need to change a long-term strategy that’s working. But if you could complement it with an emergency plan, you’ll make far more money.

When the economy goes down, people don’t spend less, but they change their priorities. In fact, you want to be ready to spend more so that you don’t miss those low offers.

Nobody knows when the trend is going to change, but you can learn a lot from doing research and critical thinking. Independent thinking will protect you from group-thinking and make better decisions.