Here are some wise financial decisions you can make right now. Morgan Housel, the author of The Psychology of Money, expressed it best in approximately 140 characters on recessions. In the middle of all the talk about a probable recession, he tweeted, “We are unmistakably approaching a slump. Only the date, location, length, magnitude, and policy response are questioned.”
He means that a recession is always on the horizon since economies are cyclical, with upswings and downturns. When we’re in the middle of it, we can’t tell what’s going on with any accuracy; we can only look back. Since the Great Depression, the United States has seen around a dozen economic downturns that lasted a few months to over a year. Trying to find out the specifics of the recession is a guessing game. Anyone who claims otherwise is most likely trying to sell you something.
The best we can do is use history to put things in perspective, become more proactive about what we can control, and resist the urge to panic. This involves looking back at how prior recessions affected people’s lives and examining our financial goals to determine what levers we can pull to keep on track. And you can also try the jobs paying 20 an hour.
There are eight particular steps you may take to increase financial stability and resilience in a volatile environment.
8 Ways to Make Your Finances Recession-Proof
1. Plan more than you panic.
The silver lining to current recession forecasts is that they remain just that: forecasts. There is time to put together a strategy without the demands and obstacles of being in the midst of a recession. Review your financial plan for the following several months and create some worst-case scenarios when your adrenaline isn’t pumping.
Consider the following: What would you do if you lost your job later this year or in early 2023? How can you strengthen your finances today to avoid being laid off? (For more information, keep reading.)
Also, Check – Howard Marks’ Top 5 Investing Advice- Stock market advisory company
2. Increase cash reserves
Having cash in the bank is essential for weathering a recession successfully. This was demonstrated by the high unemployment rate of 10% during the Great Recession of 2009. Those affected required 8 to 9 months to get back on their feet. Those who were fortunate enough to have large emergency funds could keep paying their rent and buy time to figure out what to do next.
Consider reworking your budget to put more money into savings to get closer to the six to nine-month rainy-day fund that experts recommend. Unplugging from monthly subscriptions may make sense, but calling billers (from utility providers to cable companies to car insurance companies) and asking for discounts and promotions may be better. Speak with customer retention teams to discover what special incentives they might make to keep you from canceling your subscription.
3. Look for the second source of income.
Web searches for “side hustles” are usually popular, but they’re hotter today as many attempts to diversify their income streams prepare for a possible recession. Diversifying income streams, like diversifying investments, can assist in lessening the income instability that comes with job loss. Check out my latest story for ideas on easy, low-lift side hustles you may perform from home.
4. Avoid making rash investment decisions.
After all of the recent stock market red arrows, it’s difficult not to worry about your portfolio. According to history, if you have more than 10 or 15 years till retirement, it’s best to ride out the market’s ups and downs. Those who continued to invest in target-date funds, including mutual funds and ETFs that are usually pegged to a retirement date, had higher account balances by 2011 than those who cut or stopped their contributions during the 2008-09 financial crisis, according to Fidelity.
If you haven’t yet signed up for automatic rebalancing, talk to your portfolio manager or online broker. Even as the market swings, this function can ensure that your instruments are correctly weighted and matched with your risk tolerance and investment goals.
5. Immediately lock in interest rates
Interest rates will rise as policymakers raise interest rates to combat rising inflation. Anyone with an adjustable-rate urgent loan could be in trouble due to this. It’s also difficult for individuals who have a credit card balance.
While borrowers with federal student loans don’t have to worry about rising rates, those with private variable rate loans should look into consolidating or refinancing alternatives through their existing lender or other institutions like SoFi, which can combine the debt into one fixed-rate loan. When the Federal Reserve raises interest rates again this year, your monthly payments will not rise unpredictably.
6. Keep your credit score safe
Borrowers may find it more difficult to obtain credit during recessions as interest rates and banks tighten lending standards. Aim for a credit score in the 700s or above to qualify for the best loan terms and pricing. You can usually check your credit score for free through your current bank or lender, and AnnualCreditReport.com offers free weekly credit reports from each of the three major credit agencies until the end of the year you should also check the best newspaper for the stock market.
Work toward paying down high balances, verify and challenge any inaccuracies on your credit report, or consolidate high-interest credit card debt into a lower-interest debt consolidation loan or a 0% introductory APR balance transfer card to boost your credit score.
7. Think about putting off a home purchase.
With few homes available, the housing market is already competitive. Consider renting for a little longer if rising mortgage rates put greater strain on your ability to buy a property within your budget. If you’re also concerned about your job stability in a recession, you should think twice. Although leasing isn’t cheap right now, it can give you greater flexibility and mobility. Renting keeps you more liquid amid a possibly difficult economy by eliminating the need to save money for a down payment and closing costs.
8. Protect your valuables.
“If it ain’t broke, don’t fix it,” was a piece of advice given during the late 1970s’ period of sky-high inflation.
Due to persistent supply chain challenges, many of us face high pricing and delays in obtaining new cars, digital devices, furniture, home materials, and even contact lenses. This also applies to replacement parts. If a product comes with a free warranty, make sure you take advantage of it. And if the cost of extending the insurance is minimal, it may be worthwhile when prices are rising.
My automobile, for example, has been in the shop for over three months while parts are shipped from overseas. So, in addition to my monthly automobile payment, I have a rental car price that is rapidly increasing. At the very least, I’ll be a more cautious driver as we approach a prospective recession.
