Expecting a Recession? 7 Steps to Help You Power Through
Talks about a looming recession have been hitting the headlines. Some economists don’t see a recession happening soon, while others have predicted a recession by 2024.
A recession is defined as a significant decline in economic activity that’s widespread and lasts several months . It’s no doubt that recession fears have left many Americans feeling uncertain about their financial futures.
According to a 2022 CNBC All-America Workforce Survey, 83 percent of employed adults are worried about a recession.
It’s normal to feel concerned, but what you should not do is react based on fears that can put you in a worse position.
“Recessions can be challenging times, but with the right financial strategies, you can navigate through them successfully and fortify your position,” says Richard Lerner, Senior Vice President of Investments at David Lerner Associates, Inc.
This article discusses seven steps that can help you weather a recession and come out stronger on the other side. By implementing these steps, you can safeguard your finances and position yourself for long-term financial stability.
- Pay Down High-Interest Debts.
During recessions, the prices of basic commodities rise significantly, leading many consumers to turn to their credit cards to get by.However, credit cards have notoriously high-interest rates, and failing to pay off the balance entirely can put you in trouble.It’s crucial to prioritize paying down high-interest debts, such as credit cards or personal loans, as interest rates rise rapidly. By reducing your debt burden, you can free up more financial resources and improve your overall financial health.
Consider implementing a debt repayment plan and focus on clearing these high-cost obligations.
- Don’t Be Afraid of a Bear Market.
Recessions often coincide with bear markets, where stock prices decline 20 percent from their most recent high.While market volatility can be unsettling, it’s essential to maintain a long-term perspective. Bear markets don’t last forever.Avoid making impulsive investment decisions based on short-term market fluctuations. Instead, stay focused on your long-term financial goals and consider investing in quality assets when prices are lower.
- Tap the Cash Values Built Up in Your Permanent Life Insurance Policy.
If you have a permanent life insurance policy with accumulated cash value, it can serve as a valuable source of emergency funds during a recession.Consider utilizing this cash value to cover essential expenses or temporarily supplement your income. However, be sure to understand the terms and implications of borrowing against your policy and consult a financial professional if needed.
- Bulk Up Your Emergency Fund.
A rainy-day fund is your financial safety net during uncertain times.If you’re lucky to be sitting on any extra cash — maybe that windfall or tax refund you haven’t spent yet — consider diverting it to your emergency fund. Aim to have up to a year’s worth of living expenses stashed in a liquid and easily accessible account.During a recession, an emergency fund can come in handy to help handle any sudden and unexpected events, providing you with greater peace of mind and financial security.
Moreover, use this opportunity to set aside savings for specific goals or anticipated expenses while you can.
- Make Your Dollars Go Further.
During a recession, it’s essential to be mindful of your spending and find ways to make your dollars stretch.As the cost of money becomes more expensive, you’ll be forced to figure out how to best spend your limited funds. Look for opportunities to cut back on non-essential expenses, negotiate better deals on essential services, and make frugal choices. Adopting a thrifty mindset can reduce your financial strain and preserve your resources.
- Stay Invested.
Whether your investments are performing well or not, avoid making emotional money decisions. While market downturns can be unsettling, staying invested rather than making knee-jerk reactions is important.Historically, markets have recovered and continued to grow over the long term.Maintaining a diversified investment portfolio aligned with your risk tolerance and investment goals can help you ride out the storm and benefit from future market upswings.
- Work with A Financial Adviser.
During challenging economic times, seeking professional guidance becomes even more critical.
A financial advisor can help you navigate through a recession, provide personalized advice, and help you stay on track toward your financial goals.
They can offer insights on investment strategies, risk management, and financial planning tailored to your specific circumstances.
- Pay Down High-Interest Debts.
A likely recession is not a reason to panic.
While it can bring financial uncertainty, following the above tips can help you power through and emerge stronger on the other side.
By prioritizing debt repayment, staying focused on long-term investments, and fortifying your financial foundation, you can weather the storm and position yourself for future success.
Remember, seeking professional advice and staying disciplined in your financial approach are key to navigating a recession successfully.
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. 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.