Finance Globe

U.S. financial and economic topics from several finance writers.
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How to Prepare for the Next Recession

recession-chart

If you survived the Great Recession of 2008, then you know just how bad it can get. Companies layoff employees. Household income declines while unemployment and bankruptcies rises. The country and consumers experience financial hardship in a grand scale. A recession is happens when the economy declines six months in a row. It’s hard to predict exactly when a recession will hit or what will cause it, but knowing there’s a possibility means you should be as prepared as possible if and when it happens.

Build your savings.

If you haven’t been contributing to your emergency fund, start now. Job loss is common during a recession and unemployment benefits may not be enough to cover your living expenses. Having a cushion to fall back on can keep you afloat until your income picks up again. Picking up a second job or a starting a part-time business can give you some extra income that you can use to pad your savings account.

Diversify your investments.

The stock market can decline significantly during a recession, causing you to lose hundreds or thousands of the money you have invested. This is why it’s important to diversify your investments across different assets. Having money in stocks, bonds, and safer investments like CDs can keep you from losing most of your net worth during a recession. Your age and risk tolerance also play a role in what you’ve invested in. Talk with a financial advisor to put together a recession-friendly investment plan.

When you’re taking inventory of your investments, don’t forget about your 401(k). Make sure you don’t have too much of your portfolio allocated to stocks, especially if you’re getting close to retirement. If you have less than 10 years until you retire, having too much of your investment in stocks could hit your portfolio hard during a recession.

Keep yourself employable.

Getting a job is tougher in a recession because businesses are looking to cut back on costs. Minimize the risk of losing your current job by making sure you’re valuable to your current employer. Don’t get too comfortable; there's always a risk of losing your position within the company. Keep your resume updated with your latest skills and accomplishments. It can help to pick up some skills you can use to freelance or work as a contract employee until the job force turns around again. Continue to network within and outside of your job so you can remain aware of as many job opportunities as possible.

Get rid of as much debt as you can.

Paying off debt when things are going well makes it easier to make ends meet when your budget is tight. Bankruptcy filing increase during recessions because a number of families are unable to pay their monthly expenses. Getting rid of debt minimizes the risk that you’ll have to file bankruptcy or lose assets to foreclosure or repossession.

Pay attention to news about the economy.

It can be several months from the time a recession begins and when economists actually call it a recession, but you can watch for signs of a recession yourself. Rising unemployment claims, falling gross domestic product, and falling stock market and housing markets often indicate a recession on the horizon. Remember even the best forecasters can’t predict a recession, so it’s best to be as prepared as possible when it does happen.

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Comments 1

Frank on Monday, 29 October 2018 11:43

I would recommend at least 3 months of savings. 6 months is better, but I would recommend at least 3 no matter what.

I would recommend at least 3 months of savings. 6 months is better, but I would recommend at least 3 no matter what.
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Saturday, 17 August 2019

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