Getting Ready for a Recession? Here’s the No. 1 Thing You Should Do With Your Money

When the first news of a possible recession hits, it’s easy to go into panic mode. There’s nothing like the prospect of losing your money to send you spiraling.

But rather than fall into a ball of anxiety, experts recommend taking action — especially if you’re a business owner.

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“The single most important thing is to prepare now for potential drops in revenue,” said Terry Green, finance expert and president of eSports Insurance . “Review budgets and look for any excess spending you can trim before a recession hits. Build up cash reserves by increasing premiums slightly and paying off high-interest debts.”

Read below for more tips on how to handle an imminent recession, including the main thing you should do to prepare .

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Build Up Your Cash Reserves

According to Dennis Shirshikov, head of growth at GoSummer and finance professor at the City University of New York, the most critical first step when a recession appears imminent is to bolster your emergency savings.

“During a recession, the risk of job loss, reduced income or unexpected expenses increases significantly, and having a robust cash reserve can provide the financial stability needed to navigate these challenges,” he said.

Ideally, most experts say your emergency fund should cover at least six months of living expenses.

“But if a recession is on the horizon, I recommend extending that to a year if possible,” Shirshikov advised. “Consider this: In previous recessions, individuals with substantial cash reserves were able not only to cover their basic needs but also to take advantage of opportunities such as investing in undervalued assets or starting a new venture.”

Building up this fund may require cutting discretionary spending, like selling non-essential assets or even temporarily halting contributions to retirement accounts. “While these actions may seem drastic, the ability to cover essential expenses without relying on credit during a recession is invaluable,” he explained.

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Focus on Reducing Debt

“As the owner of an insurance and financial services company, I would advise people to focus on reducing debt in a recession,” said Dalton Tigner, partner at Tigner Insurance & Associates .

John Crist, founder of Prestizia Insurance , advised the same, noting that economic downturns are concerning but also an opportunity.

“When a recession seems likely, the first thing I do is ensure sufficient cash reserves by tightening budgets and paying off high-interest debts,” Crist said. “Having significant cash provides stability and flexibility to continue operating and take advantage of opportunities.”

Diversify Income Streams

Diversifying revenue streams is also crucial for stabilizing income. “Relying on a single customer or product is risky, so I aim to broaden our reach,” said Crist.

He noted that for business owners, looking for ways to cut unnecessary expenses and trim excess costs helps build a lean operation. “The most significant things to remember are: stay calm, spend wisely, build cash, diversify and plan ahead. With prudent financial management, a business can weather economic storms.”

Tigner agreed. “Look at ways to diversify your income streams beyond your primary source,” he said. “Can you offer additional products or services to current clients? Market to your most loyal customers to strengthen those relationships. Their business will be crucial if other revenue declines.”

Plan for Different Economic Scenarios

According to Tigner, you should plan for different economic scenarios by revising financial projections. “Account for potential drops in revenue and higher costs of goods. Develop strategies now to quickly adjust if needed,” he advised.

Many businesses struggle when revenue drops, said Tigner, but with proper planning, the impacts can be minimized. “First, analyze your budgets and cut unnecessary costs like lavish employee parties or unused software subscriptions. Trim expenses now before income decreases.”

He said consistently monitoring key metrics and making changes will help you survive a recession, and also recommended building up cash reserves by limiting large purchases when possible. “Having significant cash on hand provides stability when revenue is unpredictable.”

Overall, Tigner said staying focused on fundamentals, not panicking, and looking for new opportunities will position you to overcome economic challenges.  “The keys are spending wisely, accumulating cash, diversifying income and planning ahead.”

After all, with prudent financial management, you can weather any financial storm.

This article originally appeared on GOBankingRates.com : Getting Ready for a Recession? Here’s the No. 1 Thing You Should Do With Your Money