While the economy is booming right now, it’s likely that a recession is on the horizon for the future. The last big financial crisis was more than 10 years ago after the housing bubble burst in 2008. Millions of people lost their jobs, their homes, and their income. Now, it’s important to take steps to prepare for a possible recession. Here are some ways consumers can protect their finances to help weather a financial storm.
Build an Emergency Fund
One vital piece of financial advice that no one should ignore is to build an emergency fund. Many people in the country live paycheck to paycheck and would be financially devastated if they suddenly lost their job. It’s important to start stocking some cash away that could help float your monthly expenses for a bit in case of an economic disaster. Some financial experts recommend to save up to six months of your regular expenses. Start by putting a few dollars aside each week if you can and slowly build up your emergency fund.
Cut Back on Spending
It’s a good idea to also work to cut back on some of your monthly spending if a recession is predicted to arrive soon. Look for ways to trim back on your budget, such as eating out less, cutting back on vacations, negotiating for a lower cable bill, and limiting your extra spending on gadgets or new clothes. You’ll leave more room in your budget for saving and help adjust your habits to be more frugal, which is vital during a recession.
Leave Long-Term Investments Alone
If a recession is likely, you may be tempted to move your money if you have it invested in places like the stock market. People who are decades from retirement should avoid that instinct to cash out because of recession fears. Long-term investments in financial institutions like GBTI Bank are designed to go through the market’s typical ups and downs. If you aren’t planning to retire for a while, it’s best to leave your long-term investments alone until the market rights itself. In most cases, the years following a recession will have your long-term investments rising and performing once again.
Pay Off Debt
When you have a large amount of debt looming over you, it can be scary to think of an upcoming recession. In the years or months before a predicted economic downturn, work on paying down any debt you have to give yourself more financial power no matter what the economy looks like. If you don’t have very much extra cash after cutting back on expenses, consider getting a second income to help cover the costs of chipping away at your monthly payments for credit cards and loans.
Secure Your Job
Another way you can ensure your finances will survive during a recession is with your job. Some industries are more likely to be part of massive layoffs during hard economic times, such as real estate, construction, retail, manufacturing, and finance. If you work in those fields, you may want to consider switching to a more secure option that won’t be impacted by a recession, such as education, government, or public service. Changing jobs once the recession hits will be much more difficult if the unemployment rate becomes a problem.
Avoid Big Real Estate Purchases
The months before a recession may not be the best time to purchase a home. In 2008, consumers who purchased real estate at the height of the market before the recession hit were suddenly facing underwater loans and huge interest rate jumps. A smarter idea may be to hold off on your purchase until the market is at its lowest, which is usually during a recession. Buying property during hard economic times is beneficial with lower interest rates, cheaper prices, and more potential for a big profit.
Expand Your Professional Skills
Workers who have jobs in industries that could be impacted by a recession need to make sure they increase their professional value in the years or months before one hits. If you work in one of these fields, you could be a victim of a big round of layoffs, so you need to make sure you have plenty of backup skills to rely on when searching for a new job. Before a recession, update your professional certifications or take classes to learn new skills. Polish off your resume and be prepared to search for a new opportunity if you must.
Schedule Big Medical Procedures
The last thing you should do just before a recession hits is to take care of any pending medical issues right away. It’s possible that many people could lose their jobs and their employer-sponsored health insurance too. If you have any big medical issues that need to be taken care of or procedures you’ve been putting off, get them done now before a recession hits so you’re not scrambling if you lose your job.
If a recession happens in the next year or two, be ready. Take stock of your finances and put yourself in a better position to survive a challenging economic time