How To Prepare For A Recession In A Perfect Storm

Hearing words like high inflation, bear market, and recession bandied about in the financial news is nerve-wracking. It would be natural for you to worry about how this will affect you and your family. We’ll explain these terms and how to prepare for a recession.

Even if a recession is not forthcoming, it’s always a good idea to understand how the macro factors may affect your finances. Recessions appear periodically and may be mild and short in duration like in 2020, or moderate to severe like the Great Recession, which lasted 18 months. While we typically don’t know if and when a recession will come, keeping your finances in good order is the best preparation always and reduces stress about the unknowable. You can control your personal economy, not the macroenvironment.

7 Ways: How To Prepare For A Recession

It is not fun to see your retirement and investment accounts as the market decline, with some sectors down more than 30%. Hang in there. You can’t control what happens in the stock market and our economy, but you can change your lifestyle, reduce debt, save more, spend less, and avoid knee-jerk investments by selling out of panic.

Review Your Budget

It is essential to review your budget, spending, debt levels, and ways to reduce spending to save more. When inflation is high, it is more challenging to reduce spending because the cost of your goods is higher than the 2% target. The potential of a recession may mean losing a job if you work in an industry susceptible to economic downturns. If so, tightening your budget and living stingy may be in order.

Reduce Your Debt As Interest Rates Rise

The Fed’s efforts to raise interest rates are lifting most consumer and business borrowing rates, including mortgage, auto, student, and credit cards. That may mean you should postpone some plans like buying a home unless you find something special. You’ll need to continue to pay off your debt on time, avoiding late charges. You may want to consider options depending on your finances and debt situation.

Eliminate Credit Card Balances

Carrying credit card balances is treacherous, especially at a time when interest rates are climbing above already high rates. Eliminate those toxic card balances that grow faster than your income. There are a few options: balance transfer credit card, debt snowball, or avalanche method, and get a debt consolidation loan.

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