Even if a recession seems like a remote possibility, it’s a smart move to consider how a potential recession will impact your financial health and security. The old adage is sound advice — “expect the best, prepare for the worst.”
Save for a flash flood
The second you started earning money and paying bills, you were probably told that an emergency fund is a necessity. Life is unpredictable, and even if it’s not for a possible recession, a robust emergency fund can be your safety net if you lose a job or have to take time away from work because of a health problem or injury. In other words, if you don’t have an emergency fund yet, now is the time to start one.
“Building an emergency fund to cover at least six months of expenses will help you sleep at night if the economic (sic) starts to decline,” reports Bankrate writer Brian Jones. “If six months of savings is too audacious of a goal at first, start small by setting up a direct deposit into your emergency savings account.”
Ask for a second opinion
The stock market is never a sure bet, but with speculation of a financial downturn or recession, it can become even more unpredictable or volatile, negatively impacting your current and future investments. To help navigate uncertain times, Glen Smith, CFP®, CRPC®, managing partner of Glen D. Smith & Associates and Kiplinger writer, suggests talking with a professional financial adviser, who is trained and knowledgeable about what stocks can do well in an erratic market.
“A qualified investment adviser can help to provide access to products that are suitable for your specific risk tolerance,” Smith adds.
Get out of the red
Debt is never an easy thing to deal with, even in strong, stable financial times. With the rumors of a recession flying, debt will be even more challenging to eradicate, so it’s important to look at your finances and debt now and take steps to balance your affairs. According to Jones, you could start with the debt that carries the highest interest rate and then work your way down through your other accounts. If you need a “win” to get the debt ball rolling, Jones suggests paying off your lowest bill first until you are able to be debt-free.
Keep it top of mind
Don’t let a recession blindside you. You must make your finances and all things that can impact your financial health a priority, according to Jones. Now is the time to pay attention to the news and what experts are saying about the economy, especially if they mention a certain buzzword, he warns.
“If you start seeing articles that the curve is inverted [inverted yield curve], you know you have about a year or so to get your finances in order because a recession could be coming,” writes Jones.
By reviewing your accounts, rectifying your debts, building an emergency fund, asking for help and keeping up to date on the current and projected economic climate, you’ll be able to successfully weather a potential recession.