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7 Ways to Bulletproof Your Finances Ahead of a Likely Recession In 2023

Discussions about a looming recession have been making headlines for months, with no conclusion as to what Americans can expect.

While some economic experts don’t see a recession happening anytime soon, others have predicted a 50-50 chance of a recession in 2023.

One thing we know for sure is that the current high inflation and rising interest rates by the Federal Reserve are key factors contributing to a potential economic downturn. Recessions have historically followed the Fed raising interest rates to battle high inflation.

According to a recent CNBC All-America Workforce Survey, recession fears are leaving many Americans worried about their financial futures. Previous recessions have all seen a tumultuous stock market, higher costs of borrowing, and pervasive layoffs.

You can be less worried if you check in with your money habits now and set yourself up to be in a secure financial position. You can stress less about a recession knowing that you have built a robust foundation.

Here are seven smart financial steps to take right now:

Because of the skyrocketing prices of consumer goods, you’ll have to figure out how to best spend your limited dollars.

For instance, instead of driving to work every day, consider carpooling, public transportation or walking if you don’t live far from your workplace.

Use the saved money to bulk up your cash reserves.

These are expenses outside necessities such as food, rent, and utilities.

Start with recurring charges you don’t use, such as gym memberships and streaming services.

Some apps can run your current subscriptions and let you decide which ones to keep and which ones you can do away with.

It’s easy to turn to your credit cards with prices of everything from groceries to air tickets rising significantly.

While they can help you in a pinch, by not paying off your credit card balance in full by the end of your billing cycle, your credit card debt can add up quickly. 

Credit cards are known to charge notoriously high-interest rates, and with the Federal Reserve’s monetary policy tightening, carrying a balance will become even more costly.

Get rid of credit card debt by signing up for a balance transfer credit card. This is a special type of credit card that allows you to pay off your balance interest-free. If something happens to your job, you will feel less underwater if you owe less debt overall.

If you’re lucky to be sitting on some extra cash — maybe that windfall or tax refund you’re yet to spend — add it to your rainy-day fund.

While it’s recommended to have a cash buffer at all times, if we enter a recession, an emergency fund can come in handy to help cater to unforeseen events such as layoffs.

If you end up not needing it, at least you’ll have a nice cushion that you could use in any future emergency.

If you’ve been considering signing up for a tax-advantaged Roth IRA, now may be the best time to begin the process.

What makes a Roth IRA different from a traditional IRA is that, unlike the latter, you’ll pay taxes now, when the rate is still low, and withdraw funds in retirement tax-free when you’re in a higher tax bracket.

You can take advantage of a recession as your IRA contributions are typically invested in the market.

While it’s important to stay invested, diversifying your portfolio into assets such as fixed income, equity, cash instruments, and real estate will reduce the effect of a recession.

Just like it helps to diversify your investment portfolio, diversifying income streams can minimize the income volatility associated with job loss.

You can find a second job or start a business on the side.

“While nobody can really predict whether a recession will happen in 2023, the above tips are easy ways to bulletproof your finances regardless of what the future brings,” says Robert Cavanagh, Senior Vice President Investments for David Lerner Associates.

Decide which one work best for your personal financial situation and start practicing them today to stay ahead.


Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc.

This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.  Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual’s personal circumstances.

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