Worried 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 Large editor and So Money podcast host Farnoosh Torabi.

What’s going on

More economists and financial experts in the US are forecasting a recession, usually marked by two consecutive quarters in which there is a significant slowdown in economic activity.

why does it matter

All previous recessions have seen widespread layoffs, higher borrowing costs, and a tumultuous stock market.

Whats Next

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

The state of the economy is the concern of the day. inflation skyrockets and shows no signs of stopping, despite three Interest rates Federal Reserve hikes earlier this year. And, with more rate hikes to come, next as soon as this month, many are concerned that the Fed’s attempts to slow economic growth could lead to a situation recession.

Since the Great Depression, the US has had about a dozen periods of economic recession lasting from a few months to more than a year. somehow there is always a recession on the horizon: Economies are cyclical, with ups and downs. We can’t predict what’s going to happen in advance, and sometimes we can’t even tell what’s happening while we’re in the middle of it. Morgan Housel, author of the psychology of moneymay have said it better when he tweeted in april: “We are definitely headed for a recession. The only thing that is uncertain is the timing, the location, the duration, the magnitude and the political response.”

Trying to figure out the details of the recession is a guessing game. Anyone who tells you otherwise is probably trying to sell you something. The best thing we can do now is build on history to build context, be more proactive about 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 goals to see what levers to pull to stay on track.

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

Read more: Bear Markets: Expert Stock Market Tips for Investors

1. Plan more, panic less

The silver lining to current recession predictions is that they are still only forecasts. There is 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 few months, review your financial plan and plan for some worst-case scenarios when your adrenaline isn’t high.

Some questions to consider: If you were to lose your job at the end of this year or in early 2023, what would your plan be? How can you strengthen your finances now to weather a layoff? (Keep reading for related tips.)

2. Increase your cash reserves

One key to navigating a recession relatively unscathed is having cash in the bank. The high unemployment rate of 10% during the Great Recession of 2009 taught us this. On average, it took eight to nine months for those affected to get back on their feet. Those fortunate enough to have strong emergency accounts were able to continue paying their housing costs and gain time to determine next steps with less stress.

Consider restructuring your budget to allocate more to savings now to get closer to the six- to nine-month recommended reserve for rainy days. It might make sense to opt out of recurring subscriptions, but a better strategy that won’t feel as proprietary may be to call your billers (from utility companies to cable and Car insurance) and ask for discounts and promotions. Talk specifically to customer retention departments to see what deals they can offer you to keep you from canceling your plans.

3. Look for a second source of income

Web searches for “sideline activities” are always popular, but especially so now, as many look to diversify income streams in the run-up to a potential recession. As well as helping to diversify investments, diversify income streams can reduce the volatility of income that comes with job loss. For inspiration on low-rise, easy side hustle you could do from home, check out my story.

4. Resist impulsive investment moves

it’s hard not to be worried about your wallet after all the recent red arrows in the stock market. If you have more than 10 or 15 years until retirement, history shows that it is better to ride the ups and downs of the market. According to Fidelity, during the financial crisis of 2008 to 2009, those who remained invested in target-date funds, which include mutual funds and ETFs commonly tied to a retirement date, had higher account balances in 2011 than those who reduced or stopped their contributions. .

If you haven’t signed up for automatic rebalancing yet, definitely check this out 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 swings.

5. Lock in interest rates now

Like the policy makers raise interest rates to reduce inflation levels, interest rates will rise. This is potentially bad news for anyone with an adjustable rate loan. It is also a challenge for those carry a balance on a credit card.

While federal student loan borrowers don’t have to worry about their rates going up, those with private loans variable rate loans You may want to consider consolidation or refinancing options through an existing lender or other banks, such as SoFi, that could consolidate the debt into a 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 have a harder time accessing credit in recessions as interest rates rise and banks impose stricter lending rules. To qualify for the best loan terms and rates, aim for a strong credit score in the 700s or more. You can usually check your credit score for free through your existing bank or lender, and you can also receive free weekly credit reports of each of the three main credit bureaus until the end of the year from Credit Annual Report.com.

To improve your credit score, work to pay high balancesreview and dispute any errors that may be on your credit report or consider consolidating high-interest credit card debt into one lowest interest debt consolidation loan either 0% Introductory APR Balance Transfer Card.

7. Press pause on buying a house

is already a competitive real estate market with few houses for all. Yes increased mortgage rates are adding more pressure to your ability to buy a home on budget, consider renting for a little longer. If you’re also worried about your job security in a potential recession, that’s all the more reason to pause. Leasing isn’t cheap right now, but it can give you more flexibility and mobility. Without the need to park cash for a down payment and closing costs, rent can also keep you more liquid during a potentially challenging economy.

8. Take care of your valuables

The advice that was born out of the period of sky-high inflation in the late 1970s still applies today: “If it is not broke, do not fix it.”

With ongoing supply chain issues, many of us face high prices and delays in purchasing new cars, technology products, furniture, home supplies, and even contact lenses. This also includes spare parts. If a product comes with a free warranty, be sure to sign up. And if it’s a nominal fee to extend insurance, it may be worth it at a time when prices are on the rise.

For example, my car has been in the repair shop for more than three months, waiting for parts to arrive from abroad. So in addition to paying my monthly car payment, I have a car rental fee that is adding up. At the very least, I will head into a potential recession as a more cautious driver.

read more: Smaller packages, same prices: the reduction in inflation is sneaky

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