How to prepare for a next economic recession?

When it comes to your family or personal budget concerns, recent economic news has certainly been heartbreaking.

Highest inflation in 40 years and a recession on the horizon. Interest rates through the roof. Stock markets down. Wages lagging behind increases in the cost of living.

But there are plenty of common-sense steps you can take now to make sure you’re prepared for the grim fiscal reality, whether it’s additional inflation, a general economic slowdown, or of a combination of these factors.

Above all, don’t panic. Yes, the prices of basic necessities have skyrocketed and no one predicts that will dissipate any time soon. Yes, the Federal Reserve has raised benchmark interest rates and the cost of debt is rising. And, yes, opening recent 401(k) investment statements has probably been a hectic exercise.

But the expert advice is to keep calm and not be tempted to react by liquidating current investments as a tactic to avoid further losses. A recession might be in store, but it’s usually short-lived (the last one, amid the worst of the COVID-19 pandemic, only lasted three months.) The same goes for bear markets. And recoveries that occur at the end of inflation/recession periods create the best opportunities, in terms of gains, for those who stay the course.

Remember that investing is a long game.

“You may take a short-term loss, but if you hold on, history tells us the market will recover over time,” Stephanie Genkin, a Brooklyn-based certified financial planner, told The Cut. “You don’t have to be a genius to succeed in the market. You just need to have discipline. »

Tackle personal debt, especially the high-interest variety. The essence of the Fed’s interest rate hike strategy is to make credit and debt more expensive, which theoretically discourages spending and slows the economy. So any outstanding debt that you are currently carrying that has a high fixed rate, or a floating rate that will follow the Fed’s adjustments, needs priority attention. Credit cards are generally the worst in this category.

“The number one job for anyone with a credit card is to pay off their balance as soon as possible,” Matt Schulz, chief credit analyst at LendingTree, told The Washington Post. “When a recession is looming and interest rates are rising rapidly, this is even more important.”

According to the Post, one way to tackle debt is to get a low-interest personal loan or sign up for a balance transfer credit card. You can get out of debt much faster if you transfer high-interest debt to a credit card with a 0% rate.

If you can’t qualify for a zero-rate credit card, call your current credit issuer and ask for an interest rate reduction, Schulz suggested. “About 70% of people who asked for one last year got one,” Schulz said. “But far too few people ask.”

Hide that money, but not under the bed. Financial advisers suggest that we should all have savings in reserve that can cover three to six months of our living expenses. Easier said than done, especially for individuals and families who may already be struggling to keep up with recent steep increases in the cost of basic necessities.

For a lot of people right now, this inflation problem feels like an emergency,” Mark Hamrick, senior economic analyst for Bankrate.com, told The Washington Post.

You don’t want to have to go into debt if you lose your job or because your wages don’t keep up with historically high inflation, he said.

The benefit of recent increases in borrowing rates is the upward (but not much) movement of savings vehicles like bonds or certificates of deposit, although savers need to think about how much money to tie up in time-limited accounts.

Make a plan, and do it now. Preparing for a more challenging slog is key, but you also need to be prepared to navigate worst-case scenarios. What would be your first step after an unexpected job loss? Can you make budget adjustments now, before any potential future economic deterioration, to be in a better position to weather the storm?

“I like to think of this strange and uncertain time as an opportunity to be proactive,” Farnoosh Torabi, senior editor at CNET Money, told The Cut. “We can still act now without the real pressures that come with a recession like unemployment or loss of income.”

Who could you turn to for help? Could you move in with your parents or a sibling if you had to? What else would you be willing to do? If you had to make do with the bare minimum, what would that look like? According to The Cut, financial educator Tiffany Aliche calls it her “budget noodle” and offers some helpful tips for living off it here. Hopefully you’ll never be in that situation, but it’s a good idea to have a plan so you don’t react blindly (and potentially make bad decisions) if the worst should happen.

About Elizabeth Fisk

Check Also

Current Mortgage Interest Rates, August 1, 2022 | Tick ​​Down Rates

Editorial independence We want to help you make more informed decisions. Certain links on this …