How to protect your finances against the recession

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How to protect your finances against the recession
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Candy Valentino remembers times of financial uncertainty. Growing up as the daughter of two teenage parents — her car mechanic father, housekeeper mother — money was often in short supply, she says.

As a teenager, “I saw my parents working so hard, and I started thinking about what it would be like to be the person who owned the building rather than the person who rented it out or worked there.”

Valentino went on to become a real estate investor and entrepreneur, as well as a guide for those looking to build wealth. Her recent book, “Wealth Habits,” offers a guide to achieving financial independence, and she will soon be offering a similar online course.

But Valentino knows that it is difficult to build wealth if your financial situation is precarious. In the event of an economic downturn, you could find yourself in the wrong direction if you are not prepared.

“The most important thing we can do to survive any economic downturn, any recession, is to make small decisions ahead of time so you never have to worry about paying for the things you need” , she says. .

Here’s what she says you can do now to protect your finances against the recession.

Diversify your sources of income

One of the main dangers of a recession is that companies will be forced to lay off part of their workforce. To prevent the prospect of job loss from derailing your finances, look for several ways to generate regular income, says Valentino.

And make sure they come from a wide range of sources. It’s the same logic that applies to building an investment portfolio: by spreading your bets, you reduce the chances that a downturn in a particular type of business could put a major damper on your plans.

This might mean finding a side hustle that wouldn’t be affected by the same factors as your full-time gig.

” To make sure that [your income streams are] not all in a similar or related industry is the key so that if a market goes bad – like for example, you’re heavy in real estate, and the real estate market starts to go bad – you have income in another way to from a different type of source,” says Valentino.

Live within your means

As a guideline, Valentino suggests devoting at least 20% of your income to savings and investments.

“If you’re thinking, ‘Oh my God, there’s no way I could do this,’ that’s the #1 indicator that tells you you’re living beyond your means,” Valentino says. . “If you can’t save and invest in yourself first, then all those depreciating assets — the bags, the cars, the fancy shoes — are the physical representation that you’re living beyond your means. “

Valentino’s point is that if you find that you’re spending almost all of your salary each month, you’re walking a bit of a tightrope. If the economy turns south, you could find yourself going into debt in order to continue financing your lifestyle.

Of course, you may struggle to save even if you don’t buy shoes and travel to Europe. In these cases, you have two choices, says Valentino: “You can either reduce your expenses or increase your income to increase that bottom line.”

If you’re already working hard and your budget is tight, the prospect of increasing your income may seem onerous or out of reach. If that’s the case, try thinking outside the box of what a secondary hustle might look like, Valentino says.

“It’s amazing how people can sell their knowledge. There are classes on breastfeeding and how to help your child walk earlier,” she says. “These are things that most people think, ‘Oh, I don’t have any talents or skills, I can’t do something like that.’ But anyone who has lived for a while in their life has experience in something.”

Want to earn more and work less? Register for free CNBC Make It: Your Money Virtual Event on Dec. 13 at 12 p.m. ET to learn from the money masters how you can increase your earning power.

Don’t miss: 75% of wealthy young Americans are wrong when it comes to investing, according to CFP

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