When we read the financial news, it seems probable that we're headed toward a recession. This could not be the case, but preparing for the worst may give you peace of mind now, and avoid trouble later on. Here are some tips you should follow.
Economists are not too optimistic about the future and recession sounds scary. But, thankfully, there are a number of actions you can take today to protect yourself and your finances.
Try yo pay your credit card debt
Now is a great moment to get aggressive with your payoff plan if you have a credit card debt. Carrying debt into a recession could bring major financial trouble if you lose your job or have a lower income during that time.
Strengthen your emergency fund
Financial experts recommend that everyone build an emergency fund that could cover six months to a year's worth of expenses. Your emergency fund can get you through a period of unemployment till you find your next job.
However, losing your job during a recession, when the economy as a whole has taken a hit, can make the period between one job and another much longer.
So, while you still have a job is an excellent time to add to your emergency fund. Start an automatic transfer to your savings account with every paycheck, and look for other ways to cut down costs and put that money towards your fund.
Maintain your regular investments
It can seem counterintuitive, but during a recession, you probably don’t want to stop your regular contributions to your investment accounts, whether that’s your 401(k), Individual Retirement Account (IRA) or a taxable brokerage account.
While it can be stressful to put money into a downward-trending market, it allows long-term investors to benefit from what are essentially sale prices on investments.
You may think you could game the system by taking your money out of the market at its high and then reinvesting it when it hits its bottom. But timing the market is notoriously hard to do and can drastically damage your earnings if you miss days when the market makes large gains.
If you're close to retirement, make sure you have cash
The only exception to leaving your investments alone is if you're on the verge of retirement. If you're still entirely invested for the long term, you may find yourself retiring, but unable to access your retirement income because it has taken a recessionary hit.
If, in the next few years, you'll need to live off the money that's currently invested, then make sure you transfer some of your investments into cash equivalents. These will remain stable and available for you even if a recession hits just as you're ending your career.
Go to the doctor
The cost of health care can be prohibitively expensive, even for Americans with health insurance. This is why it's a good idea to schedule a checkup with your doctor now. Getting this done while you have employer-sponsored coverage in place may head off any potential health (and financial) problems.