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Creating Freedom Through Financial Independence


How to Become Recession-Proof

June 22, 2021

As we’ve learned from COVID-19, the most unthinkable and unlikely events can unfold in any given year.

Nothing is certain and we can’t take our current situation for granted.

For this reason it pays to have a plan and be prepared, so we can adapt to whatever new environment we find ourselves in.

A big part of my writing is focused on helping you build a strong financial position for yourself.  And what better way to do that than by helping you become recession-proof… or as close to that as possible.


What’s in this article?

I share what I think are the most useful strategies for coping with a recession. All ideas are worth considering, but feel free to focus on the aspects that resonate with you the most.

Some of the strategies are applicable at all times, while others can be utilised in a worst case scenario, helping to ensure a recession doesn’t turn into a personal financial disaster.

If you’re an avid reader of all things money and finance, many of the points you’ll have heard of.  But that’s good news.  This checklist will reinforce your current knowledge and ensure your plan is robust, so you can continue to move forward with confidence.

Whoever you are and whatever your plans, I hope you get value from this post and it gives you some peace of mind when dealing with an uncertain future.  Okay, let’s get started!


Maintain a good savings rate.

The importance of a solid savings habit cannot be overstated.  In fact, if there’s only one thing you do in your whole financial life, make it this one.

Living through a recession can be scary.  But FAR less scary if you’ve been building up savings for the months and years beforehand.

This is the single best action you can take to develop a strong financial base for yourself.  And something we all must do, regardless of our income, because a nasty recession has the ability to take our income away completely.


Minimize debt.

Pay off all consumer debt if you have any.  When hard times hit, the last thing you want is money flowing out the door for car repayments, credit cards, and other rubbish like that.

Paying down and getting ahead on your mortgage is also extremely valuable.  This will allow you to ‘take a break’ if you lose your job.

Another way of doing this is to build up your savings in an offset account.  This has the double benefit of reducing the interest on your mortgage, while the cash is fully accessible just like a normal transaction account.

A caveat: in some rare cases, lenders can close off the ability to redraw from your mortgage, which happened to a few unlucky people in 2020.  So you may want to stash your money in an offset account instead.  Same benefits, more control.


Have a solid emergency fund.

Essentially, this means any cash you have access to.  A decent guideline here is a few months expenses saved up.  This can be cash, bonds, or again, an offset account.

Alternatively, this could also be a line of credit like a margin loan or a separate portion of your home loan which remains unused until disaster strikes.  You could even take this lump out and put it into your offset account to guarantee access to these funds.

This gives you even more accessible funds at a reasonable interest rate as a further backup plan.  If you’re half decent with money, having backup plans in the form of debt is not as risky as it sounds.


Refinance your mortgage.

Get the best possible mortgage rate you can by refinancing while you’re in a good employment position.

You could even consider extending your loan term to reduce the monthly repayments. This is one of the many mortgage strategies you can use to free up more cash for saving, investing or both.

You can still pay same monthly amount if you like, but this gives you more flexibility over your cashflow.  Then, if something happens, not only will you have more cash and investments, but you’ll have less outgoings to worry about.

Ultimately, your ability to manage money matters way more than the level of debt you have.  As a somewhat extreme example, I left work with a few million in debt, but didn’t lose a single night’s sleep because I knew how to manage it.


Spend less, or have the flexibility to do so.

Consider what parts of your lifestyle could be considered optional.

What things could you take a break from spending on for a while, if you needed to?

We’ve all got some areas where we could trim the fat if we had to.  Imagining a bad scenario unfolding quickly puts things in perspective and helps us separate our wants from our needs.

With lower expenses, it’s much easier to plug the income gap for a period of time, and much less stressful too!


Consider earning extra cash.

This could be a traditional part-time job, or a side-gig using sites like Fiverr, Airtasker, and so on.

I know people say that there’ll be no work if we’re in a recession.  But this is a bit dramatic.  There’ll be less work, definitely.   That doesn’t mean nobody will want help with things or spend money on personal services.

After all, in most recessions, 90% of the workforce remains employed.

What are you good at that you could charge people for?  Could you sell a few unused possessions on Facebook Marketplace or Gumtree?

Maybe you decide to learn new skills in your spare time now – like building things, creative work, or taking courses – which you can use to earn income in the future.  Maybe there’s a way to earn income from your hobby?

If you’re not keen on extra work, consider renting a room out in your house for a little while.  There can be some tax implications to this, so consider it carefully first.

Alternatively, you could aim to make more money now if your employment situation is good, so that.


Positive cashflow.

Make it a rule that any investments you buy must deliver a positive income to you.

An asset which grows in value but has negative cashflow becomes a burden when no longer have a job (trust me on that one).

This is one of the dark sides of leverage.  When shit hits the fan, interest and loan repayments are still due.

Things like gold, bitcoin and many speculative assets also deliver no income.  Yes you can tap into these during a recession.  But you’ll be reluctant to given you may be facing steep losses at the time.

Income-producing investments will be like a gift from heaven during a recession, even though their value will also decline.  Any extra cashflow that’s coming in the door will help you get to the other side!


Develop a strong mindset.

So many people’s lives are driven by fear.

Fear of losing money.  Fear of not being liked by others.  Fear of missing out.  Fear of the future.  Fear of some random scary event hurting us.

But that’s no way to live.  We can’t control everything that happens.  So we need to accept life the way it is, full of uncertainty.

Realise that you have the ability to adapt and thrive in whatever situation you find yourself in.  That doesn’t mean things will be easy.   It just means you’ll figure it out – humans always do.

It might sound a little fluffy and ‘life coachy’, but we need to believe in ourselves.  If fear and doubt control you, it’s very difficult to lead a happy life, let alone muster the courage to take charge of a tough situation.


How to be financially vulnerable.

Let’s flip it around.  Think for a moment of what puts you in a financially weak and vulnerable position.

  • One income stream (job).
  • No savings.
  • Personal debts.
  • Little liquid (accessible) investments.
  • High lifestyle costs.
  • Reluctance to be adaptable.

Plenty of Aussie households tick most of these boxes.  As a result, they’re not well equipped to handle a recession.

But by doing some of the things listed in this article, you’re heading in the other direction.  Towards strength and having options and breathing space.  And that offers huge peace of mind.

You can’t ensure a recession never affects you.  But there are countless ways we can prepare and deal with it if it does, which takes a lot of worry out of the situation.


When I got fired.

At age 19, I was fired from my job.  It was sudden and quite a shock.  But for some reason,  I wasn’t scared or afraid.   Then I realised why.

As a single guy living in a share-house, my expenses were low and flexible.  Plus, I had savings in the bank.  These two simple things allowed me to relax, rather than freak out about paying next week’s rent.

While the job loss was caused by my bad attitude rather than a recession, the situation is similar.

It was incredibly eye-opening at a young age to experience what it’s like to be in a modest yet still financially sound position.  I wasn’t preparing for job loss, but having savings meant I was prepared anyway.

Side note: This ended up being the summer I took off and did a lot of thinking.  After seeing what it’s like to have money, freedom and not having to work, my desire for financial independence was born.


Final thoughts on becoming recession-proof.

You may notice a theme in between these lines.

External factors may push and pull us (and our finances) in certain directions.  But ultimately, it’s our internal drive, adaptability, willingness to take charge and improve our situation that creates long term financial strength.

Everyone’s situation is unique, but I hope this little blog post provides some ideas and gets you thinking about your life and the different pillars of strength you can fall back on.

By implementing many of these strategies, you’ll be far more prepared than most people to adapt to any new economic environment we find ourselves in.

And that gives you confidence and peace of mind, not just during a recession, but at all other times too!

Home loan recommendation:  If you want help getting a better mortgage rate so you can save more or pay off your loan faster, check out my personal mortgage broker More Than Mortgages.  I’ve worked with Deanna and her team for years and they’ve been fantastic.   

Note: this blog may receive a small referral fee if you use MTM.  I only ever recommend things I use myself and genuinely believe in. 


14 Replies to “How to Become Recession-Proof”

  1. Great Article, common-sense advice.

    What sticks in my mind when reading this was the stories my grandparents told me about what it was like living in the olden days as a kid. You really had be smart and savvy with your resources back then. No credit cards or easy access to loans.

    I think some people of a younger age have not been through a period of a significant downturn. If you are young my advice is to ask your parents or grandparents about tough times in the past. You will gain an appreciate how good you have in 2021 despite the current pandemic.

    1. Cheers NG. Good advice mate! It’s mindblowing to think how people used to live not that long ago and how incredibly soft we are now in comparison.

  2. Nice article mate and all good advice to help us sleep better at night!
    When Covid first reared its head last year, my wife and I did our first proper family budget in years. It was a good exercise in actually quantifying our spending, what months to expect bills and more importantly challenge us to reduce things. We try and revisit it every 6 months or so now and helps us stay focused on what’s important.
    For pillars of strength – I keep 6 months worth of our forecast ‘spend’ as a cash emergency fund. I’m always tempted to invest it (for time in the market purposes), but with markets high, it’s good having a bit on the sidelines for if we need it – and so we wouldn’t have to sell any investments if I lost my job.
    Keep up the good work – I’m enjoying the podcasts too!

    1. Thanks Jezza! Nice work getting on top of things – sometimes we need a little surprise to motivate us into action.
      That emergency fund is well served sitting on the sidelines, it’s job is to help you sleep well at night, rather than earn big bank 🙂

  3. G’day Dave ,

    Mr Milton here !! ????

    Absolutely enjoy reading and listening to you , your past experiences, knowledge and resilience…money can’t buy.
    Recession or no recession, the days of Bob and Sheryl , with their modest thrifty lifestyles are
    to be admired and sought after …keep it simple. have a purpose and enjoy the moments .


    1. Thanks Jimmy, I appreciate that mate. Well said – sometimes people learn the importance of staying on top of your money the hard way.

  4. Another really good article as always mate!

    Just on a unrelated note, I wanted to get your thoughts on the Milton merger with Washington H. Soul Pattinson today. I didn’t know this merger was happening and was shocked to see my MLT shares shot up 16%. Do you regret selling Milton given the share price jump? Is Milton now a more attractive hold now? Just curious of your general thoughts on this and the impact mergers have on a LICs. Would you still sell your Milton shares if you were stilling holding them?

    1. Cheers Bailey. Well, regret is maybe the wrong word. I don’t regret my choice because I made the best decision for me based on all the info at the time. Of course it would’ve been better if I held, but couldn’t have known what was gonna happen, haha!

      Yeah I would probably either sell Milton now and reinvest elsewhere or just wait and receive SOL shares when the takeover (likely) occurs. So it depends whether an investor wants to own Soul Pattinson or not. It’s a pretty attractive investment conglomerate, which I wrote about here – but it’s a personal choice.

      It’s a good outcome for MLT shareholders, for sure. But a little sad for those who just wanted to own Milton for the long term. Hope that’s useful.

      1. To continue with content drift.

        SOL is not an LIC. It is classified as an energy company. I expect it will remain that after the merger. So no LIC Capital Gain Discount.

        It does not have a DRP and probably won’t.

        It has never, to my knowledge, approached shareholders for capital so an SPP is unlikely.

        There is external management of SOL – Contact Asset Management at 0.1%. MLT was not externally managed.

        It is held by other LICs or ETFs so if that is the preferred approach, why hold directly?

        Disclaimer: I have held MLT for years and it is my second largest holding (on cost-basis). I also held SOL for many year but sold a couple of years ago.

        1. Hey SK. My understanding is Contact only manage part of SOL’s equity portfolio, which is only a portion of the pie. The actual management and running of SOL and its businesses is not in the hands of Contact.

          The point on indirect holding is interesting. The presentation suggests SOL will become a top 50 company (or thereabouts) after the merger, so it will mean indexes own a much larger holding in SOL than before.

          1. Yes, Dave, that’s what I meant. Thanks for clarifying that aspect. Still, to get one’s 0.1% management hands on another $3b or so could certainly help one sleep at night. 🙂

  5. Hi Dave, I have listened to all of your podcasts and throughout enjoy all of them and I think you are so incredibly generous with all of your wealth of knowledge.

    I have been a property investor for several years but after listening to your podcasts I have converted to shares so thank you! I have made my first purchase of $10K in VAS. I have another $20K ready to invest and I was wondering if VAS is the best option or there is something better available. I don’t mind taking a high risk for high reward. I look forward to hearing from you soon.

  6. Back to the main theme. Most budget in different ways. I have a trait to use an electronic format of the envelope system. It does sound weird I know (and I am to be honest) but it places a discipline on me.

    Separate from my buckets of money, I have two debit cards with different banks. One I use for groceries, petrol, etc and the other for small personal items (coffee, parking and the like). Each Tuesday, I have scheduled a set amount to go to each card. After Wednesday I transfer the excess amounts left on each (and there has always been an excess amount) back to one of my bucket funds.

    The other reason for the two debit cards is in case I lose one or one is blocked by the bank (happened once when I withdrew funds from my home town and tried to use the same card late at night that day while interstate. The system “thought” the card had been stolen.)

    Anyways, just a thought and how I go about budgeting such as it is. Strong financial discipline is essential but that does not mean you need to stop enjoying what you do.

    1. Man, that’s interesting! Great to hear it works for you, which is all that matters in the end. There’s plenty of weird and wonderful money management strategies out there.

      Must say, I’ve never been attracted to the bucket approach personally. I just do one bucket and then expenses are either “yeah that’s fine” or “hmm, probably not a good idea” 🙂

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