What should you do with your money to prepare for a recession?

Soaring inflationpainfully high gas pricesand fear of an impending recession have many Americans worried about their financial security.

“If you have inflation and a recession combined, that’s a whole different beast,” said Sam Zimmerman, CEO of Sagewell Financial, a banking firm geared toward seniors. “Now is the time to act. The sooner you act, the more power you have to reduce the impact of a recession.”

Given the darkening economic outlook, what should you do with your money and how can you prepare for a possible recession?

First of all, don’t do this

Although there are money moves you can take to help overcome a slow-downwhich generally should not include the bailout of the stock market.

“The worst thing people can do is get nervous and take money out of the market,” said Jordan Rippy, personal finance expert and accounting professor at Johns Hopkins Carey Business School. “Most people should be invested in the long-term market.”

Reduce your budget

Instead, look for ways to lower your monthly budget. This may mean deleting things like subscriptions and streaming serviceswhile negotiating discounts on your cable, cell phone and other bills.

“Invoice negotiation services are a way to lower your costs, which is a simple way to fight inflation,” Zimmerman said.


Here’s how to save as gas prices hit a new high

03:53

Create a spreadsheet of your expenses or use a budgeting program like Mint to organize and reduce your recurring costs.

“If someone is spending everything they bring home, it shows what they are spending it on and they can get more details by looking at a bank account spreadsheet,” said Lisa Featherngill, national director of the wealth planning at Comerica Bank.

Pay off your debt

It is costly to take on debt in an inflationary environment. In particular, you want to immediately pay off credit card debt – or any type of variable interest rate debt. This is because these interest rates will rise and increase the debt.

“If you carry a balance on your credit card after the due date, you pay 15 to 25 percent interest, so that’s very expensive debt you’re carrying,” Rippy said. “There’s no benefit to having credit card debt – it’s a perpetual drain on your personal economy.”

“You don’t want to drag debt into a higher rate environment or an environment with more economic uncertainty,” added Greg McBride, chief financial analyst for Bankrate.com. “If the economy goes into a recession, you might be working fewer hours or not having as much money on the doorstep, but often the debt payments are still there. Any debt you can get rid of now helps you put you in a better position should tougher times lie ahead.”

Loans with fixed interest rates, such as student debt or mortgages, are generally less expensive.

“[Fixed-rate] the debt is linked to inflation when it was not high, but your other expenses are higher. It’s a bit of a steal to pay off your debt in that context,” Zimmerman said. “In a simple case, you might have a 2% mortgage that’s fixed and inflation is 7% to 9%. As things get more expensive, your debt stays the same.”

Keep contributing to your 401(k)

Don’t hit pause to save for retirement. Indeed, if possible, continue to store the same fixed percentage of your income in your 401(k) or other retirement savings plan. Even if the market is volatile, your assets will increase over time if you don’t try to time the market.

This approach, known as dollar-cost averaging, allows people to look beyond the usual dizzying swings in the stock market and continue to build their nest egg.

“There are no quick fixes or magic tricks in personal finance,” Rippy said. “It’s a long game, and people need to keep pouring their money into their retirement accounts like they’ve been doing. Keep pouring money into it and let it grow.”


How to manage your investments, your retirement plan in a bear market

05:01

If you want to invest in more recession-proof sectors, gold and commodities like alcohol tend to be relatively safe, according to Zimmerman.

“People tend to drink when they’re happy and when they’re sad, so alcohol is a sector that tends to be recession-proof,” he said.

On the other hand, beware of very speculative speculations assets like cryptocurrency.

Create new revenue streams

Try to diversify your sources of income so that if your business downsizes and you lose your job, you still have money to earn.

“Now is the time for a part-time job or a hobby that you want to turn into something more. There’s a ton of value in having multiple streams of income when uncertain,” Zimmerman said. .

If you are creative, you can turn to a platform like Etsy and sell homemade products. You can also sell unwanted household items and clothing on sites like Ebay, or online consignment stores like Thredup.

“You take on depreciating assets just to make money and clean up your house at the same time,” Zimmerman said. “A lot of people have a lot of stuff lying around, and if you have something of value, you can almost always sell it.”

About Elizabeth Fisk

Check Also

Tips to protect seniors from scams – San Diego Downtown News

District Attorney NewsBy Summer Stephan Every year in San Diego County, seniors are cheated out …