It was sobering news this summer when Bank of America economists put out projections of a “mild” recession to take place this year. That projection has since been pushed back slightly, but the fact remains that economists believe a recession is very likely in the near future.
What does that mean to regular people, as opposed to economists? Well, record inflation rates coupled with high personal debt loads and a waffling jobs market has put many people on edge. So far, unemployment has remained low, and job openings have remained high, but some sectors (such as tech) have had increasing layoffs of late.
Also: the Federal Reserve has aggressively raised interest rates in its last few meetings, and more increases are expected in order to try to put the brakes on continued inflation. Unfortunately, sometimes those moves by the Central Bank can push a teetering economy into a recession zone.
Prepare Now in Case a Recession Happens
When a recession is potentially looming, it is prudent to make sure your finances are fully prepared to deal with any economic conditions that may come along. Here are some steps to take to secure your financial situation, no matter what the economic weather may bring.
1) Save as Much as You Can
The primary concern in a recession is that the economy is contracting: companies hire fewer people, wages stagnate, and the possibility of losing your job can increase. That is why your number-one move right now is to set aside as much money as you can in savings or in an emergency fund. If you can, save at least a few months’ worth of income into your bank account. That way you can keep yourself afloat in the event of a job loss during the recession.
2) Take Down Risky Investments
Right now is the time to reduce your exposure to risky or speculative investments. There may be a time and place for these investments in certain economic climates, but you want to be as far away from them as you can get when things start to get dicey. This is why it is highly recommended that you consider what you have your money in right now and perhaps cash out those positions that are overly speculative.
3) Look for a Stable Career or a Side Hustle
If you already work in an industry that is stable, then great; count yourself among the lucky ones. But as the economy destabilizes, jobs that aren’t very secure — hospitality, retail, restaurants, entertainment, manufacturing are among the sectors that feel the punch first — are the first place where contractions take place.
It’s not always possible to rethink an entire career, but now might be the perfect time to spread yourself a little thin and start your own side hustle. Pursue any small-business idea you have, or create an always-in-need service business, whether housecleaning, babysitting, driving and delivery or security.
4) Reduce or Eliminate Debt Pre-Recession
It is a major problem to try to deal with debt when a recession hits. We may feel comfortable carrying a certain amount of credit card debt when we are safely employed and the economy is simmering. But debt quickly becomes a noose that tightens around your neck when interest rates are climbing, inflation is driving prices up and your job security wavers.
Now is the time to consider a debt consolidation loan or paying off all your debt in another way. You can always try the “snowball method” of paying the smallest debts first, or the “avalanche method” of paying the highest-interest debts first. But if you already feel squeezed, those methods might not work for you. Look into whether you qualify for a debt consolidation loan, which can usually offer you a lower interest rate than what you are paying now — and you can wipe out your debt in one fell swoop with the loan.
5) Speak with a Financial Advisor
Sometimes the best thing to do is to speak with an expert. If you have a financial advisor that you trust, then you should consider speaking with that person about your current state of affairs. He or she can provide guidance about which steps are most prudent for you to take at a time like this.
If you’re struggling with credit card debt, take action now, and speak with an advisor at Funding Hawk. Ask if they can help you get rid of your high-interest credit card debt, before we find ourselves in the middle of a recession.