4 drastic — but painless — changes I’ve made to my financial plan to prepare for a recession

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• I’m already living like we’re in a recession to prepare myself for what could happen next year.
• As an entrepreneur, I need to be extra careful, so I’m bulking up my emergency fund and spending less.
• I’m also looking into developing an online course to bring in more passive income.

At the end of every year, I spend a few days taking inventory of my finances. I start out by taking a look at all of the spending and investing mistakes I made throughout the year. Then I analyze how much I was able to save on a monthly basis by sticking to a budget and how close I got to achieving my yearly financial goals.

One thing I’m doing differently this year is trying to find ways to recession-proof my finances in case of a big economic downturn in 2023.

Even though I’ve been making significant changes with my spending this year because of inflation, there are things I can be doing now in case a recession happens and my income as an entrepreneur and freelancer drastically changes. 

Here are the ways I’m switching up my financial strategy now by pretending we’re in a recession so I can prepare for what could happen next year. 

1. Limiting holiday spending 

Every single year, my spending gets out of control during the holiday season. Even though I stick to a pretty tight budget throughout the other months of the year, starting in October, I find that I’m spending way more than I planned to.

Last year, I spent a few thousand dollars on holiday vacations, gifts, and items that I didn’t really need but found on sale during Black Friday.

This year, I decided to limit my holiday spending to just $500. I plan to use that money for travel and gifts, supplementing the cost of items and airfare with credit card points. To make sure I stick to this number, I created a spreadsheet with everyone I want to buy a gift for and what I want to buy, and have been using websites like Price.com to track prices so I can buy it at the lowest cost. I also planned travel in advance and was able to find deals on airfare using tools like Skyscanner. 

2. Creating a tight budget for 2023

If we do move into a recession, my biggest fear is that I’ll lose income and clients as an entrepreneur and freelancer. If brands and businesses start to tighten their spending, they could cut back on wanting to work with me. 

That’s why I’m starting to create a budget for 2023 as if my salary was 25% lower than it is right now. I picked that number because it’s a good baseline to start planning for. If I end up losing 50% of my salary, I can make a less significant adjustment to that new 2023 budget. 

Viewing my monthly earnings that way helps me plan in advance for the possibility of bringing in lower than normal monthly income while also shifting my spending habits in advance. If nothing big changes and I don’t lose a chunk of income from the recession, that extra money can help with other financial goals, like investing in new assets or larger contributions to my retirement fund. 

3. Adding extra cash to my emergency fund 

To avoid taking on any debt in 2023, I want to make sure that my emergency fund is in a strong place. Ever since I got laid off from my full-time job in 2015, I’ve had a goal to build an emergency fund with at least six months worth of expenses.

To prepare for this, I’m going to contribute at least 10% more a month to my emergency fund for the first six months of 2023, pulling this money from anything I’m able to save by sticking to a tighter-than-normal budget.

Today’s savings rates:

4. Finding new sources of passive income 

Over the years, I’ve been eager to incorporate additional passive income streams into my financial portfolio. While I already have some that bring in steady income every month (from dividends to affiliate revenue from products I share on my social media and website), I want to bring in at least two new revenue streams to prepare for a recession. That way, if my income changes as an entrepreneur and freelancer, I can count on steady cash coming in through other passive income streams. 

Right now, one way I’m working on bringing in more passive income is by developing an online course that will live on my website and be marketed to my social media audience on a weekly basis, as a way to bring in passive income. I’m also looking into ways to invest in real estate without buying a property myself and instead using platforms like Fundrise.