Concerned about a recession? Here are 8 tips to protect your finances


This story is part of So Money (subscribe here)an online community dedicated to financial empowerment and advice, led by CNET Editor at Large and So Money podcast host Farnoosh Torabi.

What’s happening

A growing number of US economists and financial experts are forecasting a recession, generally characterized by two consecutive quarters of marked slowdowns in economic activity.

Why it matters

Previous recessions have all been marked by widespread layoffs, higher borrowing costs and a turbulent stock market.

What’s next

Focus on what you can control, gather facts and take action to protect your finances.

The state of the economy is the concern of the day. Inflation is rising and shows no sign of stopping, despite three Interest charges hikes by the Federal Reserve earlier this year. And with more rate hikes on the horizon – the next one as soon as this month – many fear that the Fed’s attempts to slow economic growth could push us into a crisis recession.

Since the Great Depression, the US has experienced about a dozen periods of economic setback, lasting anywhere from a few months to over a year. In a way there is always a recession on the horizon: Economies are cyclical, with booms and busts. We can’t predict in advance what’s going to happen, and sometimes we can’t even tell what’s going to happen while we’re in the middle of it. Morgan Housel, author of The psychology of moneyperhaps said it best when he tweeted in April: “We are definitely heading towards a recession. The only uncertainties are timing, location, duration, magnitude and policy response.”

Trying to figure out the ins and outs of a recession is a guessing game. Anyone who tells you otherwise is probably trying to sell you something. The best we can do now is go back to history to build context and be more proactive with that Money movements that we can control and resist the urge to panic. This includes reviewing what has happened in previous recessions and taking a closer look at our financial targets to see what leverage we need to pull to stay on track.

Here are eight specific steps you can take create more financial stability and resilience in a turbulent economy.

Continue reading: Bear Markets: Expert Stock Market Advice for Investors

1. Plan more, panic less

The silver lining to the current recession forecasts is that they still are forecasts. There’s time to put a plan together without the real pressures and challenges that come with being in the middle of an economic slowdown. Over the next few months, review your financial plan and plan for some worst-case scenarios if your adrenaline isn’t running high.

Some questions to consider: If you were to lose your job later this year or in early 2023, what would your plan be? How can you strengthen your finances now to weather a layoff? (Read on for related advice.)

2. Build your cash reserves

A key to getting through a recession relatively unscathed is having cash in the bank. The high 10% unemployment rate during the Great Recession of 2009 taught us this. On average, it took eight to nine months for those affected to land on their feet. Those lucky enough to have solid emergency accounts have been able to continue paying their housing expenses and buy time to figure out next steps with less stress.

Consider switching your budget to invest more in savings now, to get closer to the recommended six to nine month reserve for bad days. It can make sense to ditch recurring subscriptions, but a better strategy that doesn’t feel as draining might be to call billers (from utility companies to cable operators). car insurance) and ask about discounts and promotions. Talk specifically to loyalty departments to see what deals they can offer to keep you from canceling your plans.

3. Find a second source of income

Web searches for “side hustles” are always popular, but especially now that many are looking to diversify their income streams in the run-up to a potential recession. Just as it helps diversify investments, Diversify income streams can reduce income volatility associated with job loss. For inspiration on easy, low lift side hustles you might be able to do from home, check out this my story.

4. Resist impulsive investment moves

It’s hard not to be worry about your portfolio after all the recent red arrows on the stock market. If you have more than 10 or 15 years until retirement, history proves that it’s better to stick with the ups and downs of the market. According to Fidelity, through the 2008-09 financial crisis, those who stayed invested in end-of-term funds, which include mutual funds and ETFs that are typically tied to an annuity date, had higher balances through 2011 than those who reduced or stopped making contributions.

If you have not yet signed up for automatic rebalancing, be sure to check with your portfolio manager or online broker. This feature can ensure that your instruments remain properly weighted and aligned with your risk tolerance and investment objectives, even when the market fluctuates.

5. Lock interest rates now

As the policy makers raise interest rates to lower inflation levels, interest rates will rise. This potentially means bad news for anyone with an adjustable rate loan. It’s a challenge for them too carrying a balance on a credit card.

While federal student loan borrowers don’t have to worry about their interest rates going up, those with private ones do variable rate loans You may want to explore consolidation or refinancing options through an existing lender or other banks like SoFi who could consolidate the debt into a fixed rate loan. This will prevent your monthly payments from increasing unpredictably if the Federal Reserve raises rates again as expected this year.

6. Protect your credit

Borrowers may find it harder to access credit during recessions as interest rates rise and banks enforce tighter lending rules. To qualify for the best loan terms and rates, Aim for a strong credit history in the 700s or higher. You can usually check and obtain your creditworthiness through your existing bank or lender for free free weekly credit reports from each of the three major credit bureaus by the end of the year

To improve your credit score, work on it Payment of high balancesreview and dispute any errors it may be on your credit report, or consider consolidating high-yield credit card debt into a low interest debt consolidation loan or 0% introductory APR credit transfer card.

7. When buying a home, press pause

It’s already one competitive housing market with few houses to go around. if rising mortgage rates putting more pressure on your ability to buy a home on budget, consider renting a little longer. If you’re also worried about your job security in a potential recession, that’s all the more reason to stop. Leasing is currently not exactly cheap, but it can give you more flexibility and mobility. Without the need to park cash for a down payment and closing costs, renting can keep you more liquid even in a potentially tough economy.

8. Take care of your valuables

The advice born of the sky-high inflation era in the late 1970s still applies today: “If it ain’t broke, don’t fix it.”

With ongoing supply chain issues, many of us face high prices and delays when buying new cars, technical products, furniture, household materials and even contact lenses. This also includes spare parts. If a product comes with a free guarantee, be sure to sign up. And if it’s a small fee to extend insurance, it can be worth it in times of rising prices.

My car, for example, was in the shop for over three months waiting for parts to arrive from overseas. So on top of my monthly car rental, I have a rental car fee that adds up. Last but not least, I will go into a possible recession with a more cautious driver.

Continue reading: Smaller Packages, Same Prices: Shrinkflation is sneaky


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