If you’re on a Galaxy Fold, consider unfolding your phone or viewing it in full screen to best optimize your experience.
Credit Cards
Banks
Brokers
Crypto
Mortgages
Insurances
Loans
Small Business
Knowledge
by Dana George | Published on Aug. 30, 2022
Image source: Getty Images
An upcoming recession does not mean the sky is falling.
Check out our pick for Best Cash Back Card of 2022
Economic recessions may be scary, but they're a normal part of the economic cycle. The signs of a recession include an increase in unemployment, a drop in the stock market, a dip in the housing market, and a decline in the gross domestic product (commonly called the GDP). Plus, it seems there's always someone saying the U.S. is in the middle of a recession or one is on the horizon.
If those dire warnings make you nervous, here are six things you can do today to prepare for the next economic downswing.
Take a look at your emergency fund to determine how many months you could get by without a job. If the unemployment benefits in your state aren't enough to cover your bills, figure out how much more you would need to keep up with your monthly obligations. The rule of thumb is to have enough money put away in a dedicated savings account to pay three to six months' worth of bills. You may want more than that available during a recession.
No one expects you to come up with all the extra money today, but now is the time to create a savings plan that can carry you through months of economic downturn.
Go over your monthly budget with a fine-toothed comb and cut any expenses you can do without. For example, if you're paying a landscaper, dog walker, or cleaning crew, consider whether you can take over those jobs yourself until the economic outlook appears rosier.
You could also cancel subscriptions and memberships you don't use, or identify any part of your budget that can be trimmed. For some, that may mean shopping smarter at the grocery store or using an app to find the least expensive gasoline in their area. For others, it may mean having friends over for a game night once a week rather than hitting a bar.
Some people yank their investments the moment they hear murmurs of a recession. It's not only an emotional reaction but also a good way to sabotage their chances of building wealth. As mentioned, one of the signs of recession is falling stock prices. If you leave your current investments alone and stick with your long-term investment goals, your money can be used to buy discounted stocks. Once the recession passes and stock prices climb again, your portfolio will typically be worth even more.
The truth is this: It's easier to get through economic downturns when you're not carrying a boat load of debt. You may not be able to pay your debt off today, but you can devise a plan to get it paid off as soon as possible. No matter your debt-busting method, now is the time to prepare for inevitable future recessions.
Time is the most valuable commodity in life, and most of us feel as though we don't have enough. However, it could be worth taking the time you need to decide what you're passionate about and then see if there's a way to monetize that passion.
For example, if you love spending time with children, you could become a licensed care provider and offer childcare to working parents. Or if you're a woodworker, you might sell your goods online. And if you play a musical instrument, you could offer to teach others how to play.
Identifying a passion achieves two things. It ensures you'll spend time doing something you enjoy — and it provides an extra stream of income.
According to History.com the U.S. has experienced 13 recessions since the end of World War II. On average, each recession has lasted 10 months. And after each recession, there has been a period of growth and expansion that has lasted, on average, 57 months (that's almost five years). Recessions come and go, and preparing financially for them can give you a little extra peace of mind. The trick is not to panic but to plan.
If you're using the wrong credit or debit card, it could be costing you serious money. Our expert loves this top pick, which features a 0% intro APR until nearly 2024, an insane cash back rate of up to 5%, and all somehow for no annual fee.
In fact, this card is so good that our expert even uses it personally. Click here to read our full review for free and apply in just 2 minutes.
Read our free review
Dana has been writing about personal finance for more than 20 years, specializing in loans, debt management, investments, and business.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
Related Articles
Best Budget Apps
Best Cash Back Apps
The Ascent’s Definitive Credit Score Guide
Best Debt Payoff Apps
Best Budget Apps
Best Cash Back Apps
The Ascent's Definitive Credit Score Guide
Best Debt Payoff Apps
The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters.
Copyright © 2018 – 2022 The Ascent. All rights reserved.
About Author
