This story is part of So Money (subscribe here), an online community dedicated to financial empowerment and advice, led by CNET Editor at Large and So Money podcast host Farnoosh Torabi.
When it comes to recessions, Morgan Housel, author of The Psychology of Money , said it best in about 140 characters. Amidst all the noise about a possible economic downturn, he tweeted , “We’re definitely heading toward a recession. The only thing that’s uncertain is the timing, location, duration, magnitude, and policy response.”
What he means is that there’s always a recession on the horizon; economies are cyclical, with upswings and downturns. We just can’t tell exactly what’s happening with any precision while we’re in the middle of it; we can only look back. Since the Great Depression, the US has had about a dozen economic setback periods lasting anywhere from a few months to more than a year. Attempting to figure out recession specifics is a guessing game. Anyone who tells you different is probably trying to sell you something.
The best we can do is draw upon the history to build context, get more proactive about what we can control and resist the urge to panic. This includes reviewing how previous recessions altered the way of life and taking a closer look at our financial goals to see what levers we can pull to help stay on track.
Here are eight specific steps you can take to create more financial stability and resilience in a turbulent economy. 1. Panic less, plan more
The silver lining to current recession predictions is that they’re still only forecasts . There is time to assemble a plan without the real pressures and challenges that come with being in the thick of an economic slowdown. Over the next couple of months, review your financial plan and map out some worst-case scenarios when your adrenaline isn’t running high.
Some questions to consider: If you did lose your job later this year or in early 2023, what would be your plan? How can you fortify your finances now to weather a layoff? (Keep reading for related advice.) 2. Bulk up cash reserves
A key to navigating a recession relatively unscathed is having cash in the bank. The steep 10% unemployment rate during the Great Recession in 2009 taught us this. On average, it took 8 to 9 months for those affected to land on their feet. Those fortunate to have robust emergency accounts were able to continue paying their housing costs and buy time to figure out next steps with less stress.
Consider retooling your budget to allocate more into savings now to hit closer to the recommended six to nine month rainy day reserve. It may make sense to unplug from recurring subscriptions, but a better strategy that won’t feel as depriving may be to call billers (from utility companies to cable to car insurance ) and ask for discounts and promotions. Speak specifically with customer retention departments to see what offers they can extend to keep you from canceling your plans. 3. Seek a second income stream
Web searches for “side hustles” are always popular, but especially now, as many look to diversify income streams in the run up to a potential recession. Just like it helps to diversify investments, diversifying income streams can reduce the income volatility that arrives with job loss. For inspiration on easy, low-lift side hustles that you can do from home, check out my recent story . 4. Avoid impulsive investing moves
It’s hard not to be worried about your portfolio after all the recent red arrows in the stock market. If you have more than 10 or 15 years until retirement, history proves it’s better to stick with the market ups and downs. According to Fidelity, those who stayed invested in target-date funds, which include mutual funds and ETFs commonly tied to a retirement date, during the 2008-09 financial crisis had higher account balances by 2011 than those who reduced or halted their contributions.
If you have yet to sign up for automatic rebalancing, definitely look into this with your portfolio manager or online broker. This feature can ensure that your instruments remain properly weighted and aligned with your risk tolerance and investment goals, even as the market swings. 5. Lock interest rates now
As the policy makers raise interest rates to bring down inflation levels, interest rates will increase. This potentially spells bad news for anyone with an adjustable rate loan. It’s also a challenge for those carrying […]
Protected by Patchstack