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What is happening
More economists and financial experts in the U.S. predict a recession, usually marked by two consecutive quarters where there is a significant slowdown in economic activity.
Why it matters
Previous recessions have seen widespread layoffs, higher borrowing costs and a tumultuous stock market.
That follows
Focus on what you can control, collect facts, and make moves to protect your finances.
The state of the economy is the concern of the day. Inflation is soaring and showing no signs of stopping, despite three Federal Reserve interest rate hikes earlier this year. And with more rate hikes to come, next month, many are worried that the Fed’s attempts to curb economic growth could push us into a recession.
Since the Great Depression, the U.S. has had a dozen periods of economic downturn that have lasted 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 going on while we’re in the middle of it. Morgan Housel, author of The Psychology of Money, perhaps said it best when he tweeted in April: “We are definitely heading 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 likely to try to sell you something. The best we can do right now is take advantage of the story to create context, be more proactive about the money movements we can control, and resist the urge to panic. This includes reviewing what happened in previous recessions and taking a closer look at our financial goals to see what levers need to be pulled 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: Bearish markets: expert stock market advice for investors
1. Plan more, panic less
The good cover of current recession predictions is that they are still just forecasts. There is time to put together a plan without the real pressures and challenges of being in the midst of an economic downturn. Over the next two months, review your financial plan and chart some of the worst-case scenarios when your adrenaline is not running low.
Some questions to consider: If you lost your job later this year or early 2023, what would be your plan? How can you strengthen your finances now to withstand a layoff? (Read on for related tips.)
2. Increase your cash reserves
A key to navigating a relatively unscathed recession is to have cash in the bank. The sharp unemployment rate of 10% during the Great Recession of 2009 taught us that. On average, those affected took eight to nine months to land standing up. Those lucky enough to have solid emergency accounts were able to continue to pay for housing costs and gained time to figure out the next steps with less stress.
Consider re-equipping your budget to spend more on savings now to get closer to the recommended six- to nine-month booking for rainy days. It may make sense to disconnect from recurring subscriptions, but a better strategy that doesn’t feel so private may be to call billers (from utility companies to cable car insurance) and ask for discounts and promotions. Talk specifically with customer retention departments to see what offers they can expand to prevent you from canceling your plans.
3. Look for a second source of income
“Secondary commotion” web searches are always popular, but especially now, as many seek to diversify revenue streams in the face of a possible recession. Just as it helps diversify investments, diversifying income streams can reduce the income volatility that comes with job loss. For inspiration on easy, low-rise side movements you can do from home, check out my story.
4. Resist impulsive reversal movements
It’s hard not to be worried about your wallet after all the recent red arrows on the stock market. If you’re over 10 or 15 years old for retirement, history shows that it’s best to keep up with the ups and downs of the market. According to Fidelity, those who remained invested in target funds, which include mutual funds and ETFs commonly linked to a retirement date, had higher account balances in 2011 during the financial crisis from 2008 to 2009 than who reduced or stopped their contributions.
If you haven’t signed up for automatic rebalancing yet, check it out with your online wallet manager or broker. This feature can ensure that your instruments stay properly weighted and aligned with your risk tolerance and investment goals, even as the market fluctuates.
5. Now block interest rates
As policymakers raise interest rates to reduce inflation levels, interest rates will rise. This can mean bad news for anyone with an adjustable rate loan. It is also a challenge for those who carry a balance on a credit card.
While federal student loan borrowers don’t have to worry about raising their rates, those with variable-rate private loans may want to look for consolidation or refinancing options through an existing lender or other banks, such as SoFi, which could consolidate 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 more difficulty accessing credit in times of recession as interest rates rise and banks impose stricter lending rules. To get the best loan terms and rates, aim for a solid credit score in the 700s or higher. You can usually check your credit score for free through your existing bank or lender, and you can also receive free weekly credit reports from each of the three major credit bureaus until the end of the year at AnnualCreditReport.com.
To improve your credit score, work to pay off high balances, review and discuss any errors in your credit report, or consider consolidating high-interest credit card debt into a debt consolidation loan. lower interest or an introductory 0% APR balance transfer card.
7. Press pause when buying a home
It is already a competitive housing market with few houses to move around. If rising mortgage rates add more pressure to your ability to buy a home within budget, consider renting a little more. If you’re also worried about your job security in a possible recession, this is even more reason to take a break. Renting is not cheap at the moment, but it can offer you more flexibility and mobility. Without the need to park cash for an upfront payment and closing costs, renting can also keep you more liquid during a potentially difficult economy.
8. Take care of your valuables
The advice that was born from the period of very high inflation in the late 1970s still applies now: “If it’s not broken, don’t fix it.”
With ongoing supply chain problems, many of us face high prices and delays in purchasing new cars, technology products, furniture, household supplies and even contact lenses. This also includes spare parts. If a product includes a free warranty, be sure to register. And if it’s a nominal fee to extend insurance, it may be worth it at a time when prices are rising.
For example, my car has been in the repair shop for over 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 being added. If nothing else, I will head for a possible recession a more prudent driver.
Read more: Smaller packages, same prices: Shrinkflation is stealthy