Although 2018 was a banner year for the economy, with unemployment rates at an almost 50 year low and increasing wages driving consumer spending to an all-time high, some financial experts are predicting another recession is on the horizon (although probably not this year thanks to the recent strong growth in the economy).
Even if times are good economically at the moment, history shows us that prosperity is cyclical, with the national economy fluctuating between highs and lows, so it just makes sense to have a plan for leaner times. Are you prepared for a possible recession? Here are a few steps you can take to prepare yourself and your finances for a possible recession, whenever it comes. And if it never does, you’ll still be in good shape.
Pay down debt. By avoiding unnecessary spending (read “impulse buying”) you can put more of your income toward paying down your debt. Start with your highest cost debt (usually high interest rate credit cards) and put everything you save by curbing impulse buys into getting your credit card bills to zero. This creates some breathing room in your budget, gives you a sense of accomplishment, and reduces stress. Try a balance transfer credit card with zero interest and use that introductory time (which can be up to 14 months) to make the most of your payments. If the introductory 0% APR time frame expires before you get the balance totally paid off, look for another zero interest rate card to transfer the remaining balance to and keep doing that until your credit cards are all paid off. Then stop using them.
Build emergency savings. Save an emergency fund of $1,000 immediately and build from there until you have an emergency fund to cover essentials like housing, food, and transportation for three to six months. This cash cushion will take care of things that inevitably come up as you’re paying down your debt and will prevent you from turning to those high interest credit cards that you’re paying off.
Boost your job prospects. There is no such thing as job security, so be smart and be prepared for a possible interruption in income due to a layoff. Improve your ability to get a new job by continuing education and skill building in your field or an area of interest and get (or prepare to get) a side hustle. If you lose your job, you won’t lose 100% of your income. Research similar jobs to your current gig and make sure your resume is ready with the skills potential employers are looking for.
Invest and diversify. If you have investments, make sure you have a good mix of both stocks and bonds. If you don’t have any investments yet, start building a portfolio. Stocks may go down during a recession but will likely recover over time. Your investment portfolio should be diversified to make the most of your money, so invest in an assortment of stocks, bonds, and mutual funds. Consult a qualified investment portfolio expert to determine the best plan for your investments.
No one can predict our nation’s economy perfectly, but one thing you can bank on (pun intended!) is that things will change. Be smart with your spending, pay off your debt as quickly as possible, build your emergency fund, update your resume, and invest wisely and you will be as prepared as you possibly can be for any change in the economy.