How To Prepare For A Recession: 7 Tips (Including Wine Investing)

Rising inflation and a declining stock market have economists arguing about whether we’re heading into a recession in the near future. 

The question isn’t about if, rather when it will happen. So, now is the perfect time to learn how to prepare for a recession, create an emergency savings account, and explore other ways to protect yourself during this period of economic uncertainty.

Let’s explore what a recession is and how to prepare for it. We’ll also cover why fine wine is an excellent inflation-proof investment and how Vinovest can help you through a recession.

What Is A Recession?

A country goes into a recession when it experiences a significant decline in economic activity for more than a few months. As per the National Bureau of Economic Research, a recession is “a period when Gross Domestic Product (GDP) is negative for two quarters.”

Recessions are a natural part of any economy. In fact, the USA has had 12 recessions since World War II. The longest-lasting recession in modern economic times was the Great Depression which lasted for 10 years. However, the Great Depression was a rare occurrence, and most recessions last for around 18 months on average.

The most recent recession was in 2020, when global economic growth, Gross Domestic Product, and consumer demand declined thanks to the reduced spending and national lockdowns during the pandemic.

Even during the pandemic, economists couldn’t predict precisely when a recession would hit the country. But, what’s certain was the increase in the unemployment rate, decreased consumer demand, lower wages, and personal finance troubles.

Currently, the USA is sitting with a 40-year high inflation rate and a declining stock market. Furthermore, the Federal Reserve recently announced a 0.75% increase in the national interest rate to combat inflation. This led Deutsche Bank Chief US economist Matt Luzzetti to move up his prediction for a US recession to early 2023. 

How To Prepare For A Recession: 7 Useful Tips

Here are 7 helpful tips on how to prepare for a recession:

1. Reassess Your Financial Priorities
2. Diversify Your Investment Portfolio With Recession-Resistant Assets
3. Create An Emergency Fund
4. Prioritize Debt Payments
5. Make Use Of Financial Assistance Programs
6. Consider Getting A Recession-Proof Job
7. Create Multiple Income Streams

1. Reassess Your Financial Priorities

One of the most testing parts of a recession is the uncertainty of future events. That’s why it’s so important to get a good understanding of your personal finance and come up with a realistic financial plan.

Here’s what you need to ask yourself when building a financial plan and preparing for a potential recession:

• How much cash flow do you have?
• How quickly can you get more cash in a financial emergency?
• How can you begin saving cash?  

So to prepare, understand how much money you’re spending each month on living expenses such as food, shelter, health and car insurance, transport, childcare, and others.

Then, look at the amount you’re spending on luxury products like your streaming subscriptions, cleaning services, and fine dining experiences. 

Find ways in which you can cut back on these expenses and begin saving some extra money for a financial emergency.

2. Diversify Your Investment Portfolio With Recession-Resistant Assets

Investing is a fantastic way to earn a passive income, but a looming recession could spell tough times for many asset classes.

For example, the S&P 500 declined 16% since the start of 2022 as investors put their money into safer investments. And it’s not just traditional assets like stocks that suffer.

The crypto market has recently witnessed a historic crash as investors aren’t willing to hedge their money on a volatile asset.

Luckily, a diversified portfolio protects against adverse market conditions because while one of your investment options may be declining, others could thrive.

For example, when the Federal Reserve lowers the interest rate during an economic downturn, the dividends paid out by the stock market and other financial markets become less appealing. But, a commodity investment like fine wine still appreciates and provides excellent portfolio diversification.

You don’t have to be a financial expert to invest in such asset classes. Still, it’s always recommended that you speak to a financial advisor to develop a plan to help reach your long term financial goal.

3. Create An Emergency Fund

The next step in preparing for a recession is creating an emergency fund. If your income ever takes a hit, you’ll need every bit of cash you can get your hands on.

All the expenses you can shave off of your monthly budget will come in handy if you’ve stored them in an emergency savings account or a money market account. Obviously, not all of us can afford to stash extra money away in an emergency savings account, but once you have a stable financial situation, it’s always a good idea.

Otherwise, you might have to start spending the money in your retirement fund or apply for credit when an emergency hits.

One of the best ways to save more is by getting rid of outstanding debts. This provides some extra cash flow to start building your emergency fund. However, you may need to choose which debts to pay first.

4. Prioritize Debt Payments

While preparing for a recession, you might be anxious about paying off your outstanding debts. In a terrible situation where you lose your income, you might have to forgo paying one or more of these bills, so understanding which bills you have to pay is important.

If you have a good credit score, consider moving your high interest debt to a card with an introductory 0% APR on balance transfers. If you can’t qualify for an offer like this, making extra payments on high interest debt like credit card debt is an excellent money-saving option. The faster you pay off high interest debt, the more you’ll save on interest charges.

Since you may not be able to pay every bill on time or in full each month, your credit score may suffer. So, you’ll need to prioritize which bills you pay first to ensure your cash covers as many debts as possible.

If you can’t make the minimum payments on your credit card debt, contact your credit card company and try working out a payment plan. The same applies to student loans. Contact your student debt lender and inquire about a hardship application, which could buy you a few months.

5. Make Use Of Financial Assistance Programs

Reach out to the various local, state, and federal government agencies in your area to get some financial relief and help with your living expenses.

Governments around the world offer all sorts of social security and financial assistance programs. For example, in the USA,  the government announced tax extensions, COVID-19 relief funds, and a foreclosure on evictions for homeowners with federally backed mortgages to help during the 2020 recession.

On a smaller scale, community establishments like food banks and places of worship will often try to help anyone during tough times.

Check with your local government and community groups to see if there are social security services near you that meet your specific needs.

6. Consider Getting A Recession-Proof Job

Some jobs are more prone to cuts during a recession than others. Recession-proof jobs experience less market volatility and may even see growth during turbulent economic conditions.

Consider getting a job in one of these fields if you’re worried about contributing to the unemployment rate during a recession.

• Healthcare
• Public safety
• Education
• Utilities
• Funeral services
• Financial services
• Social work
• Legal work

7. Create Multiple Income Streams

You never know what might happen during a recession, and your company could start implementing pay cuts or laying off employees.

Having a side-hustle or freelancing job is an excellent way to maintain some income streams and add to your emergency savings fund. Starting a small business on the side is also an excellent way to generate a second income. 

The first couple of years are often challenging for the self-employed, but it’s much easier to become wealthy in the long term if you stick with it.

Now, of these, your best bet would be a genuinely recession-proof investment that will help diversify your portfolio - fine wine.

Fine Wine: The Ultimate Recession-Resistant Investment

Fine wine is an alternative investment that provides lucrative and stable returns, even during periods of high inflation, market volatility, or declining economic activity. It’s important to remember that people enjoy a fine wine during good and bad times.

In 2008, during the “Great Recession,” stock prices fell 52%. The Federal Reserve reduced the national interest rate to near zero to fight inflation, and panicked investors fled financial markets. But, from December 2007 to June 2009, the Liv-ex Fine Wine 100 index boomed and generated 25% returns.

In 2020, while global lockdowns led to a decline in economic growth and ultimately a recession, fine wine held steady, and the Liv-ex 1000 (the broadest measure of the market) climbed 1.6%.

Fine wine provides such stable returns during economic turmoil and a potential recession because of its low correlation with traditional asset classes. 

Furthermore, a fine wine investment becomes more secure over time as a bottle of investment-grade wine becomes rarer with age.

But what’s the best way to begin your wine investment journey?

Partner up with a trusted wine investment platform like Vinovest for the easiest way to procure, authenticate, and manage a portfolio of investment-grade wines.

Vinovest’s advanced AI-based algorithm looks at thousands of wines to generate a portfolio for you. They’ll even store your bottles for you in bonded warehouses with optimal conditions and sell your wines to the highest price buyer at the right time.

Prepare For A Recession With Fine Wine

Regardless of a looming recession, now is always a wise time to review your financial plan to ensure you’re prepared for an economic downturn. Secure your portfolio today and achieve your long term financial goal with a recession-resistant asset like fine wine.

Sign up with Vinovest today and invest in rare and authentic wines from around the world.