- I get asked all the time about the possibility of a recession, and I’m telling everyone to prepare.
- To start, pay off high-interest debt, bulk up your rainy-day reserves, and don’t sell your investments.
- Take courses to advance in your career, too, so you’re not as vulnerable to layoffs.
Many people are worried about a looming recession, and it’s easy to see why. Rising inflation, spiking consumer prices, supply-chain issues, instability in the global market, and labor shortages all have many financial experts saying that another recession is around the corner.
As a financial planner, I often get asked when the next recession is coming. While I can’t exactly predict when the economy may take a turn for the worse, I can offer some good news: We’re currently not in a recession, yet.
That means now’s the best possible time to prepare your money.
Here are my tips to get ahead of the tides and recession-proof your cash.
1. Think about where to cut back
A lot of things have gotten more expensive recently — gas, food, cars, furniture — which means now’s a great time to revisit your budget and identify some areas to cut back.
I’m a huge fan of using your budget as a living, breathing record that can be revised and changed as your needs change. The easiest items to scrap are services or purchases you can live without — think dinners out, streaming services — but that doesn’t mean you need to go and cut out all the things that bring you joy.
Deciding if something is a need or a want isn’t always black and white. Some things that may seem non-essential to some people, like a gym membership, others can’t live without. It’s all about weighing your current priorities with your long-term goals.
2. Start building your rainy-day reserves, if you haven’t already
Recession or not, you should have an emergency fund. These savings help you avoid borrowing money to cover unforeseen costs like repairs, medical treatments, or job loss.
Emergencies are just that — unexpected. And many people are unprepared for them: 25% of Americans say they have no emergency savings at all, according to a study from Bankrate.
If you’re just starting out, I recommend having around six months’ worth of expenses, including the amounts you spend on necessary items like rent, utilities, and groceries. That number may sound high at first, but small contributions over time can build those savings.
You’ll want to store your emergency money in a liquid account (like a high-yield savings account) to easily access it when you need it.
3. Pay off high-interest debt ASAP
The last thing you want to deal with during a recession is high-interest debt weighing you down. Credit-card debt should be the first to go, especially when the Federal Reserve is likely to raise its borrowing benchmark this year.
Their interest rate influences short-term lending like credit cards. In other words, your credit card interest could go up even higher, causing you to pay hundreds (or thousands) in interest.
Once you pay off your debt, you’ll have room in your budget to put towards other things, like growing your emergency fund or making up for rising consumer prices.
4. Think about your career
Recessions historically go hand-in-hand with higher unemployment — which means preparing your career for the next downturn is essential.
Now’s a great time to reach out to your network and continue to maintain connections with others in your field. Typically, higher education comes with lower rates of unemployment – so if you’ve been thinking about going back to school, now may be the time. Adding new skills or bolstering your current ones could give you an edge in a future, tighter job market.
Be sure to weigh the pros and cons of potentially forgoing a salary or taking on student loan debt to earn your degree. I would also recommend being practical about what industry you’re considering. No job is completely protected from recessions, but certain industries are safer from cuts.