Worried about a recession? Here are 8 tips to protect your finances

This story is part of So money (register here)an online community dedicated to financial empowerment and advice, led by CNET Editor at Large and So Money podcast host Farnoosh Torabi.

What is going on

More US economists and financial experts are forecasting a recession, generally characterized by two consecutive quarters of significant slowdown in economic activity.

Why it matters

Past recessions have all led to ubiquitous layoffs, higher borrowing costs and a tumultuous stock market.

What’s next

Focus on what you can control, gather facts and take steps to protect your finances.

The state of the economy is the concern of the day. Inflation is spiraling out of control and shows no signs of stopping, despite three interest rates increases in the Federal Reserve earlier this year. And with more rate hikes coming – the next one this month – many worry that the Fed’s attempts to slow economic growth could put us in a recession

Since the Great Depression, the US has experienced about a dozen economic downturns ranging from a few months to more than a year. In some ways there is always a recession ahead: Economies are cyclical, with ups and downs. We can’t predict in advance what will happen, and sometimes we can’t even say what’s going to happen while we’re in the middle of it. Morgan Housel, author of The psychology of moneymight have said it best when he tweeted in april: “We are definitely heading into a recession. The only thing that is uncertain is the timing, location, duration, magnitude and policy response.”

Trying to figure out the details of the recession is a guessing game. Anyone who tells you otherwise is probably trying to sell you something. The best we can do now is build on history to create context, be more proactive about the money movements we can control and resist the urge to panic. This includes a review of what happened in past recessions and a closer look at our financial targets to see what levers we need to use to stay on track.

Here are eight specific steps you can take to: create more financial stability and resilience in a turbulent economy.

Read more: Bear Markets: expert stock market advice for investors

1. Plan more, panic less

The silver lining of the current recession forecasts is that they are still bad: predictions† There is time to make a plan without the real pressures and challenges associated with an economic slowdown. Over the next few 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 lost your job later this year or early 2023, what would your plan be? How can you bolster your finances now to weather a layoff? (Keep reading for related advice.)

2. Increase your cash reserves

One key to getting through a recession relatively unscathed is having cash in the bank. The steep unemployment rate of 10% during the Great Recession in 2009 taught us this. On average, it took eight to nine months for those affected to land. Those lucky enough to have solid emergency bills could continue to pay their housing costs and buy time to plan next steps with less stress.

Consider adjusting your budget to allocate more to savings now, getting closer to the recommended rainy-day reserve of six to nine months. It may make sense to disconnect the landline plans, but a better strategy that doesn’t feel like robbery might be to call account holders (from utilities to cable to car insurance) and ask for discounts and promotions. Speak specifically to customer retention departments to see what offers they can offer to avoid canceling your plans.

3. Find a second income stream

Internet searches for “side issues” have always been popular, but especially now, as many seek to diversify their revenue streams in the run-up to a potential recession. Just as it helps diversify investments, diversification of income streams can reduce the income volatility associated with job loss. For inspiration on easy, low-lift side hustles you might be able to do from home, check out my story

4. Resist impulsive investment moves

It’s hard not to be concerned about your wallet 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 keep up with the ups and downs of the market. According to Fidelity, those who remained invested in target-date funds during the 2008 to 2009 financial crisis, including mutual funds and ETFs usually linked to a retirement date, had higher account balances in 2011 than those who cut or stopped their contributions.

If you have yet to sign up for automatic rebalancing, be sure to check with your portfolio manager or online broker. This feature can ensure that your instruments remain well-weighted and aligned with your risk tolerance and investment goals, even as the market fluctuates.

5. Lock the interest rates now

If the policy makers raise interest rates to lower inflation levels, interest rates will rise. This may be bad news for anyone with an adjustable-rate loan. It is also a challenge for them have a credit card balance

While federal student loan borrowers don’t have to worry about their rates going up, floating rate loans you may want to consolidate or refinance through an existing lender or other banks, such as SoFi, who can consolidate the debt into one fixed-rate loan. This prevents your monthly expenses from rising unpredictably if the Federal Reserve raises interest rates again this year, as expected.

6. Protect your credit score

Borrowers may find it more difficult to access credit in recessions as interest rates rise and banks impose stricter lending rules. To qualify for the best loan terms and rates, strive for a strong credit score in the 700s or later. You can usually check your credit score for free through your existing bank or lender, and you can also: free weekly credit reports from each of the three major credit bureaus through the end of the year from AnnualCreditReport.com

To improve your credit score, work at: pay off high balancesrate and dispute any mistakes that may be on your credit report or consider consolidating high-yield credit card debt into a consolidation loan for debt with lower interest or 0% Introductory APR Balance Transfer Card

7. Press pause when buying a house

It’s already a competitive housing market with few houses to go around. if rising mortgage interest If your ability to buy a home on budget is increasingly straining, consider renting a little longer. If you’re also worried about your job security in a potential recession, that’s even more reason to take a break. Leasing is not cheap at the moment, but it can give you more flexibility and mobility. Without the need to park cash for a down payment and closing costs, renting can also keep you more liquid during a potentially challenging economy.

8. Take care of your valuables

The advice that emerged from the skyrocketing period of inflation in the late 1970s still applies today: “If it ain’t broke, don’t fix it

Of ongoing supply chain issues, many of us face high prices and delays in purchasing new cars, tech products, furniture, household supplies, and even contact lenses. This also includes replacement parts. If a product comes with a free warranty, you’ll need to sign up. And if it’s a nominal fee to extend insurance, it may be worth it at a time when prices are rising.

For example, my car has been in the repair shop for more than three months, waiting for parts from abroad. So, in addition to paying my monthly car payment, I have car rental costs that add up. If nothing else, I’m going to face a potential recession as a more cautious driver.

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