December 1, 2022

Preparing for a Recession

Q: All the news I am seeing suggests that our economy may be approaching a recession (or even in one already!). I’m worried about what this means for my finances and I’m wondering what steps I should take now. How can I prepare for a recession?

A: Economists are divided on whether we’re already in a recession or likely heading toward one. All signs seem to be pointing towards a recession: inflation has hit a 40-year high, interest rates have hit a two-decade peak and investing in the stock market now is like riding a terrifying roller coaster.

Taking steps to improve your financial health in case of a recession is a responsible and forward-thinking move. Here’s how to be in position for weathering a recession.

Take stock of your financial reality

Before you actually make any financial changes, ask yourself these questions:

  • Am I making it through the month, meeting all my expenses and putting some money into savings?
  • What is my total monthly income?
  • What is the total of my monthly expenses?
  • What is the total of my outstanding debt?
  • How much money do I have in savings?
  • How much liquid funds do I have?
  • Do I have any major and expensive life events coming up in the next year, such as a wedding, the birth of a new baby or a household move?

Realizing you may not know where your money goes by the end of the month? Stick to a Budget!

Try out Money Management! Money Management allows you to see all your financial relationships in one place. It also creates a budget off your actual tracked spending! Digitizing your budget is a great way to easily identify where your money goes, helping you avoid temptation.

Build up your emergency fund

If you don’t already have a well-padded emergency fund, now’s the time to work on building one up. Ideally, an emergency fund should have enough to keep you afloat through three-to- six months without any income.

Having this money set aside in case of an emergency, or unexpected financial stress, can help you avoid getting tangled up in a cycle of debt or even losing your home or car. Pinch pennies wherever you can to get that fund ready for a recession. It may be challenging now, but the security of having money safely tucked away to get you through difficult financial times will be more than worth the struggle.

Diversify your investments

With stock market fluctuations expected to be more extreme and happen more often during a recession, it’s crucial to keep your investments diversified. Make sure your investments are not all tied up in one asset or asset class so that a poor-performing investment won’t bring down your entire portfolio. Certificates and Money Market Accounts are a great way to earn a higher dividend and reduce your risk.

Get rid of high-interest debt

  • It’s never a good idea to hold onto high-interest debt. In a rising-rates environment, such as that of a recession, this monthly bill can increase significantly. If you have one or more outstanding credit card balances, work on consolidating the debt by moving the balance to a personal/unsecured loan. Here, you can transfer your Credit Card debt to an Interior Federal Credit Card with 2.90% intro APR for 6 months on Transferred Balances. (Then a rate as low as 11.60% APR for Visa Platinum and as low as 13.60% APR for Visa Platinum Rewards credit card.)

Look for ways to increase your income

Did you know that the average millionaire has seven sources of income? You don’t have to go that far but establishing additional income streams can be a great way to prepare for a possible recession. Consider starting a side hustle that plays to your strengths, moonlighting for a company like Uber and/or finding a passive income stream like a real estate investment.

Related Content: Coping with inflation? Be Budget Aware.


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