2023 has gotten off to a rocky start.
Based on the Fed’s comments, Interest rates will continue to be raised for the foreseeable future because the unemployment rate remains consistently low while inflation remains precariously high. It appears that the perfect storm continues to brew. We’re on a collision course with a recession.
If there’s a silver lining, it’s that there is still time to prepare. Exactly how much time we don’t know, meaning you can’t wait any longer to take action.
Follow these five steps to be better prepared when the recession officially arrives.
Step 1: Focus on building an emergency fund.
When the recession hits, you might need to dip into your cash reserves to pay your bills, particularly if your income drops. While you have time, create an emergency fund. You can do this by analyzing your monthly spending and seeing where you can “trim some fat.”
Financial advisors agree you need 3-6 months of living expenses in your emergency fund, so get started now. It won’t be fun making spending sacrifices, but you’ll be glad you did.
Step 2: Tackle your debt.
Paying your bills may be challenging during a recession, so start paying down balances now. The best place to start – high-interest credit cards.
Credit card issuers have continued to raise their interest rates in step with the Fed, and they won’t hesitate to raise them again during a recession, creating a bigger monthly payment for you at a time when you can least afford it.
Double up on your payments now so you can get out of the interest rate trap that financial institutions set out for consumers.
Step 3: Update your resume.
Unemployment rates go up during a recession. Hopefully, you and your family won’t have to experience a layoff or have your hours cut, but it could happen.
Don’t get caught flat-footed without a resume if you’re let go. You’ll need to hit the ground running if you find yourself without a job and may not have the luxury of having a week to prepare a resume.
If you can, have your resume professionally prepared. You’re going to face a lot of competition for fewer jobs, and you want to look your best.
Step 4: Get creative about saving.
One way to put more money into savings is to cut costs. For example, take a look at what you’re spending on insurance. Those premium increases may have made your current insurer less competitively priced. Have an independent agent get you three new quotes on home and car insurance. You could save hundreds of dollars a year just by doing this.
The other way to put more money into savings is to increase your income. You may need to take on a part-time job or make money through a side hustle, like freelancing or selling items online. There are many websites that will give you ideas on how to earn extra income without quitting your job.
Step 5: Invest wisely.
The stock market continues to drop. For over a year, it’s been 2-steps forward and 3-steps back for investors.
The good news – stocks are now on sale. You can buy stock in companies like Apple, Microsoft, Tesla, Amazon, and many more at prices that are considered a discount. Putting as little as $50 a month into the stock market can grow a small nest egg you may need down the road. Of course, invest more if you can.
Dividend-paying stocks are also good to own during a recession. Stalwarts like Proctor & Gamble, 3M, and General Motors typically continue to pay quarterly dividends during tough financial times.
Bottom Line
Going through a recession is not enjoyable, but some preparation in advance can take some of the sting out of it for you. Remember, recessions are not nearly as severe as depressions, and they don’t last as long. It’s painful while you’re going through it, but you’ll be wiser about handling money when you come out of it.
Having spent over fifteen years helping people plan their lives financially, Bob has a vast amount of personal knowledge concerning personal finance. During his career, Bob mastered many financial products to help people achieve their financial goals, including life insurance, disability insurance, mutual funds, and stocks and bonds. He earned the Chartered Life Underwriter (CLU) designation and held numerous securities licenses. Bob is an internationally published poet and a freelance writer living in North Texas with his wife and Doberman puppy.
