What To Do Before the Next Recession Hits
No one can say exactly when the next recession will hit, but history says one is coming. Here are the steps you can take now — while there's still time — to be in better shape when it does.
1 Why Now Is the Time to Prepare
If you were over 18 and self-supporting in 2008, you were probably hit in one way or another—or perhaps in several ways—by the Great Recession. If so, you're not unlike those who survived the Great Depression of the 1930s and who reportedly never fully overcame the fear and uncertainty of those times no matter how much they may have prospered in later years.
You may have heard that last month the stock market experienced the longest bull run (that means stocks rising) in history. Beginning on March 9, 2009, those who had their money in stocks experienced a 320 percent return on their investment over the last 9 ½ years. The current unemployment rate is 3.9 percent. Despite stagnant wage growth, by most economic markers the economy is booming.
But the inexorable law of gravity rules the stock market and the economy in general: What goes up, must come down. Although no one is prepared to state unequivocally when the next recession will hit (most economists are predicting early 2020), based on historical patterns the current economic expansion is nearing its final months. The only question besides when it will end is how bad it will be.
The one thing certain is that it won't occur in the next few weeks, or even months, which gives everyone time to prepare. Billshark would therefore like to offer some steps you can take now so you'll be in better shape when the inevitable happens.
2 Have 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 long, severe 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 six months' worth of living expenses in liquid form; that is, something you can readily access if an emergency arises.
3 Pay Down Debt
Once you have an emergency fund, if you have credit card or other unsecured debt, get rid of it. When you're struggling to keep up car, rent, or mortgage payments as well as putting food on the table, you will be very unhappy to not only be paying off old credit card debt, but paying the interest on it—money that could be going to necessities, or helping you climb out of a financial difficulty. In addition, banks could very well raise interest rates in the near future, making this debt even harder to eliminate than it is today.
4 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. Additionally, if you're able to downsize (to a three-bedroom vs. a four-bedroom, for example), you'll be ahead of the game when it comes to a more affordable mortgage if the economy takes a turn for the worse.
5 Diversify Your Investments
Stocks have done extremely well in the last few years, but that may also mean your original asset allocation ratio has become unbalanced. In other words, if you've been in the stock market since 2009, your investments may have become top-heavy in favor of stocks simply because the 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. 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). — CNNMoney
6 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 building a reputation (as well as extra income to help build that emergency fund and pay down your debt).
There's still time to think through how you'll survive the next recession, but it's smart to begin preparing for it now.
Meanwhile, let Billshark find hidden savings in your bills. We can help you start building that nest egg.
