I asked a financial advisor to review my portfolio and share 6 ways I can recession-proof my finances before it's too late

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• I shared my finances with an advisor to get his advice for preparing for a recession.
• He said to make sure my cash is earning money, get proper insurance, revisit my investment strategy, and consider a Roth IRA.
• He also advised spending less than I make and planning ahead for a potential side-hustle.

After spending most of my 20s making a variety of money mistakes, from going into debt to not having any investments, I've spent my 30s being hyper-focused on properly managing my finances.

But with talk of a looming recession hitting the US economy in 2023, I've found myself nervous that all my financial planning and goals might go to waste if I'm not doing the right things now to protect my money in the future.

To make sure I'm doing all that I can to recession-proof my money, I showed my financial portfolio to certified financial planner Jeremy Keil, who shared six ways I can switch up my strategy now to protect myself as much as possible from a recession. 

1. Make sure your cash is making money

Because I don't feel confident with my investment strategy and knowledge, a large part of my financial portfolio consists of cash sitting in my savings account.

While Keil doesn't think being so cash-heavy is a mistake, since during a recession that money can supplement my income if needed, he did say there are missed opportunities with just letting the money sit in any kind of savings account.

Action step: Keil recommends making sure I'm keeping the cash in a high-yield savings account that's earning at least 3% interest, and paying attention to higher interest rates offered in the future at other banks. 

He also says I should explore more CD options that are offering a high interest, with term lengths I'm comfortable with. Another option he recommended, which I haven't explored, is buying Treasury bills. Currently, you can buy these bills for 4.4% interest rate for a six-month term. 

2. Get proper insurance policies

Something that might not be so obvious when it comes to recession-proofing your finances is to make sure you have the right insurance policies.

"A recession means there's less money around you," says Keil. "Things that you'd normally be able to go through, and even pay for, might create even bigger problems."

For example, Keil says, if you were sick or injured and out of work for a few months, you might be able to weather that financially if the stock market was up or if your company was willing to work with you. But during a recession, everyone's money is tighter, so an illness or injury might be more costly without the right insurance in place.

Action step: As an entrepreneur and freelancer, Keil recommends that I take out disability insurance in case something happens to me that would impact my ability to work. Also, because I am married and planning to have kids in the near future, Keil also recommends that my husband and I consider a life insurance plan.

In addition to having a solid health insurance plan, Keil suggests looking into a plan that includes a health savings account. 

"If you can, max out your HSA," says Keil. "Not only does this help you cover the cost of a health emergency later on, but the money you put inside this account won't be taxed, and can roll over every year if you don't use it."

Another strategy Keil mentioned is that if you have an HSA but can cover a health expense out of pocket, do that and save the receipt. Later on, if you need cash from your HSA, you can get reimbursed for that health bill and pull that tax-free money out of your HSA to put back into your savings account.

3. Spend less than you make

When it comes to planning for a recession, Keil says your spending and income are the biggest drivers of whether you're ready for a recession. "If you have a big financial commitment, like a mortgage or rent payment, those costs aren't going to change in a recession," says Keil. "But if your income drops, your fixed expenses will stay the same."

That's why he says it's so important to control what you can control, which is your spending, especially your fixed costs. 

Right now, I'm saving between 20 and 30% of my income every month. However, I fear that a recession could cost me clients and opportunities as an entrepreneur and freelancer.

Action step: Keil said to take inventory of any fixed costs that I have and see if there are any I can cut, adjust, or prepare to change if I have to during a recession. For example, some of my fixed costs include my rent payment, health insurance monthly premium, and utility bills (electricity, cable bills, etc.).

I started brainstorming ways I can consciously lower my electric bill every month (by not leaving lights or the air conditioning on when I'm not home) and called my cable and internet provider to see if there's a lower-tier package I can switch to. 

Since I can't get my current rent payment lowered, I've found options to turn to in case my income gets drastically cut and I can't afford to pay my current rate, such as scoping out less expensive areas to move to once my lease is up in six months and creating profiles on subletting websites, just in case I need to use these platforms to find someone to take over my lease. 

4. Diversify income sources

As an entrepreneur and freelancer, the amount of money I make every month varies based on projects, clients, and overall business sales. Because a recession could impact the amount of work I'm getting, Keil suggested preparing now to launch additional income sources later on if needed.

"The quickest way a person can increase their income is to have a side hustle," says Keil.

Even if you don't have one now, he recommends starting to prepare to take one on if necessary. 

Action step: "Invest in yourself," says Keil. "Update your LinkedIn profile and your resume, plus start adding up costs of a potential side hustle and saving that money now."

For example, Keil says if you needed to earn extra money and decided to become an Uber driver, you might need to invest in leasing a car (if you don't have one), plus car insurance that covers you as a business. Setting aside or planning for these expenses now can help you when you're in a pinch and need a new income source during a recession. 

5. Revisit my investment strategy

Finally, when I showed Keil my investment portfolio, I mentioned I was unsure what to do with all of the individual stocks I invested in during the pandemic, without doing any research or having a strategy. Now that most of these stocks are down, I feared making any changes would cost me even more money.

Keil says that a down market gives people an opportunity to fix these investments, especially if your current strategy is making you feel anxious or isn't one that you're comfortable with.

Action step: "If you're not going to beat the market, you might as well join the market and buy an index fund instead," suggests Keil.

Because many of my individual stocks are down 15 to 20%, Keil shares that I probably won't pay any taxes when I sell off most of these stocks (since they will be sold at a loss) and instead put the money into an index fund, like one that tracks the S&P 500.

If I change my investment plan and instead put the money in index funds, Keil says, it can take the emotion out of holding individual stocks."When you have an index fund, you have a couple hundred or thousand stocks, so you don't feel as married to that index fund, like you would with the performance of individual stocks, especially if they go down even lower during a recession." 

6. Consider a Roth IRA

When it comes to retirement investing and saving, I currently only do that through my SEP IRA, which Keil says is a good strategy, especially during the years when my income is high, since the money put into this account reduces my taxable income for the year.

Action step: Keil also recommends opening a Roth IRA since withdrawals of both contributions and earnings are tax-free once you turn 59 1/2. While the money you put into this account doesn't lower your taxable income, you can take out any contributions you put into this account, at any time, tax free. (Note that you must leave any earnings until 59 1/2 to withdraw tax and penalty-free.)

"Consider this another version of an emergency fund," Keil says.