This story is partan online community dedicated to financial empowerment and advice, led by CNET Editor at Large and So Money podcast host Farnoosh Torabi.
What is happening
Many economists and financial experts in the United States predict a recession, usually marked by two consecutive quarters of significant slowdown in economic activity.
why is it important
Previous recessions have all seen widespread layoffs, higher borrowing costs and a tumultuous stock market.
Focus on what you can control, gather facts, and take action to protect your finances. Above all, it is important to stay calm.
The psychology of moneyperhaps said it better when he tweeted in April“We’re definitely headed for a recession. The only thing that’s uncertain is when, where, how long, how deep and the policy response.”and have experts and companies . Despite the current , there is little consensus on when a recession will occur or on its effects. Morgan Housel, author of
What he means is that there is still a recession on the horizon – economies are cyclical, with ups and downs. We just can’t tell exactly what’s going on while we’re at it. We can only look back. Since the Great Depression, the United States has experienced a dozen economic downturns ranging from a few months to more than a year.
Trying to understand the specifics of the recession is a guessing game – and anyone who tells you otherwise is probably trying to sell you something.
The best we can do right now is to use history to set the context, be more proactive aboutand resist the urge to panic. This includes looking at what happened in previous recessions and taking a closer look at our financial goals to see what levers to pull to stay on track.
Here are eight specific steps you can take toand resilience in a turbulent economy.
1. Plan more, panic less
The silver lining of the current recession forecasts is that they are still only forecasts. It’s time to make a plan without the real pressures and challenges that come with being in the midst of an economic downturn. Over the next two months, revise your financial plan and map out worst-case scenarios when your adrenaline isn’t pumping.
A few 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 fortify your finances now to deal with a layoff? (Keep reading for related tips.)
2. Increase your cash reserves
The key to weathering a recession relatively unscathed is having money in the bank. The high unemployment rate of 10% during the Great Recession of 2009 taught us that. On average, it took 8-9 months for those affected to land on their feet. Those lucky enough to have strong emergency accounts have been able to continue to pay housing costs and save time figuring out next steps with less stress.
Consider rearranging your budget to allocate more savings now to get closer to the recommended six to nine month reserve for rainy days. It might be a good idea to disconnect from recurring subscriptions, but a better strategy that won’t seem so privy might be to call the billers (from utility companies to cable to) and ask for discounts and promotions. Speak specifically with customer loyalty services to see what deals they can offer to prevent you from canceling your plans.
3. Look for a second source of income
Web searches for “side businesses” are always popular, but especially so now, as many seek to diversify sources of income as a potential recession approaches. Just as it helps diversify investments,can reduce the income volatility that accompanies job loss. For inspiration on easy, low-rise side-flips you can do from home, check out .
4. Resist impulsive investing
It’s hard not to beafter all the recent red arrows in the stock market. If you have more than 10 or 15 years left before retirement, history proves that it is better to stick to the ups and downs of the market. According to Fidelity, those who remained invested in target-date funds, which include mutual funds and ETFs typically tied to a retirement date, during the 2008-09 financial crisis had higher account balances in 2011 than those who have reduced or stopped their contributions.
If you have not yet subscribed to automatic rebalancing, consult your portfolio manager or online broker. This feature can ensure that your instruments remain properly weighted and aligned with your risk tolerance and investment goals, even when the market swings.
5. Lock in interest rates now
As policy makerslevels, interest rates will rise. This potentially means bad news for anyone with an adjustable rate loan. It is also a challenge for those .
While federal borrowers need not worry about their rates rising, those with private loansmay want to consider consolidation or refinancing options through an existing lender or other banks like SoFi who could consolidate debt into one fixed rate loan. This will prevent your monthly payments from rising unpredictably when the Federal Reserve raises interest rates again this year, as expected.
6. Protect your credit score
Borrowers may find it harder to access credit during a recession as interest rates rise and banks enforce stricter lending rules. To benefit from the best conditions and loan rates, AnnualCreditReport.com.in the 700s or so. You can usually check your credit score for free through your existing bank or lender, and you may also receive from each of the three major credit bureaus through the end of the year from
To improve your credit score, tryReview and who may appear on your credit report or consider consolidating high-interest credit card debt into a Where .
7. Press pause when buying a house
It’s already awith few houses to go around. Whether add more pressure on your ability to buy a home within your budget, consider renting a little longer. If you’re also worried about your job security in a potential recession, that’s even more of a reason to take a break. Leasing isn’t cheap right now, but it can give you more flexibility and mobility. Without the need to hoard cash for a down payment and closing costs, leasing can also keep you with more cash during a potentially tough economy.
8. Take care of your valuables
The advice that was born out of the period of skyrocketing inflation of the late 1970s still applies today: “If it is not broke, do not fix it.”
With, many of us face high prices and delays in acquiring new cars, tech products, furniture, home materials, and even contact lenses. This also includes spare parts. If a product comes with a free warranty, be sure to sign up. And while it’s a small fee to extend insurance, it may be worth it in a time of rising prices.
For example, my car sat in the repair shop for over three months, waiting for parts to arrive from overseas. So in addition to paying my monthly car payment, I have car rental costs that add up. If nothing else, I’ll be heading into a possible recession as a more cautious driver.