You’ve heard the expression, “What goes up must come down.” Nowhere is this more true than in the economy. At nearly 10 years and counting, the U.S. has been in the longest economic expansion in its history, and the signs that we’re headed for a recession are growing, particularly in the stocks and bonds markets.
It could come a few months from now, or not until 2021, but economists generally agree there’s a recession in our future. Knowing this, Billshark wants you not to panic, but to be prepared.
So here are the steps you should be taking to mitigate the effects of any upcoming economic downturn.
Boost Your Emergency Savings
Many of those who were caught in the Great Recession had the recommended six months of emergency funds stashed away, but it wasn’t enough to see them through the unusually long downturn. Some 8.7 million jobs were eliminated, with official unemployment at the height of the recession (October 2009) listed at 10 percent. Post-recession unemployment didn’t return to the pre-recession figure of 4.7 percent until May 2014.
At the very least, you should have a month or two’s worth of living expenses that you can access readily if you lose your job. Aim for six months, though, if you can.
Pay Down Your Debt
Once you have an emergency fund, if you have credit card or other unsecured debt, get rid of it. Start with your highest-interest card, pay it off, then take the money you were paying on it and combine it with the payment for the next-highest card, and so on.
Trust us: When you’re struggling to find a job and trying to pay your mortgage/rent and having to choose between keeping the lights on and putting food on the table, you’ll be thrilled not to also be making payments on old debt.
Sell Your Home
If you were a homeowner in 2008, you saw the value of your investment plummet almost overnight. Many millions lost their homes because they were upside down on their mortgage: owing more than the plunging value of their property. If you’re already thinking of selling your home, do it before another recession hits and you’ll get a higher price.
Additionally, if you can downsize now (to a three-bedroom from a four-bedroom, for example), you’ll be in better shape financially if the economy takes a turn for the worse.
Diversify Your Investments
Stocks have done very well in the last few years, but they’ve recently begun to stutter. Overall, though, the market is still up, so if your asset allocation ratio has become unbalanced, now’s the time to rebalance it. By this we mean, if you’ve been in the stock market since 2009, your investments may have become top-heavy in favor of stocks simply because stock’s return on investment (ROI) has appreciated over 300 percent. So it may be time to rebalance your portfolio to bring it more in line with your original goals.
In addition, you’ll want to diversify with an eye toward a possible recession. That means a portfolio containing individual stocks and bonds, mutual funds, or index funds.
“Furthermore, those assets should be spread across different sectors of the market,” reports CNNMoney. “For example, when choosing your individual stocks, you might load up on biotech companies, energy companies, and retailers, so that if one of those segments does well, it can offset losses in another (or losses that stem from a broader market dip).”
Diversify Your Income
As with your investments, if you have more than one source of income, you’re less likely to be devastated if you lose one. Now is the time to launch that side business you’ve been thinking about. There’s plenty of time to get it up and running and producing an income before the next recession. Or take on one or more side gigs so you can begin earning income to help build that emergency fund and pay down debt.
Meanwhile, prepare your resume, and start looking around at other possibilities, just in case. Also take a hard look at educational requirements in your field, and see whether additional classes or certifications might help solidify your position at your current company.
There’s still time to think through how you’ll survive the next recession, but it’s smart to begin preparing for it now.
And to find extra money to help recession-proof your finances, let Billshark review your bills and negotiate with your service providers. This service is free. You pay only if we are able to find you savings.