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All the talk of a looming recession may have you worried about your finances.
You’re not alone: About 74% of US consumers are worried about a recession, according to a new survey by Empower and Personal Capital. Additionally, 85% are concerned about inflation and 56% already see their standard of living falling, according to the poll of 2,000 US adults conducted between April 19-23 by The Harris Poll.
While experts are quick to point out that downturns are a normal part of the economic cycle, you should still be prepared when one does occur.
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“Of course you want to focus on getting through the recession, and some will do that easier than others,” said certified financial planner Paul Deer, vice president at Personal Capital. “But overall, you want to have a plan and stick to it.”
The odds of a recession vary depending on who you ask, with Goldman Sachs putting a 30% chance within the next year and UBS sticking to its base-case forecast of “no recession.” Meanwhile, Ark Invest CEO Cathie Wood and Wharton finance professor Jeremy Siegel believe the US is already in an economic downturn.
Whether a recession is near or a little further away, here’s what you can do to prepare.
1. Update your resume
The job market has been hot for job seekers, but that will change when a recession hits.
“People have to adjust to an overall lower level of job security,” Deer said. “With employment at an all-time high, employment will naturally decline.”
So it’s wise to update your resume now so you’re ready when layoffs occur.
If you’ve been thinking about going back to school to pursue an advanced degree or to improve your professional skills, now may be the right time to do so, said CFP Diahann Lassus, general manager at Peapack Private Wealth Management in New Providence, New Jersey .
“It improves your job opportunities in the future, regardless of the type of economy,” she said.
2. Reduce expenses
Start looking at where you can cut back on spending, Lassus suggested. Think about where you want your budget for a worst-case scenario and a best-case scenario, she said.
“You have to think about the ‘what ifs’,” Lassus said. “What if my income goes down? What if my car breaks down? What if my rent goes up?”
“Look at all the interesting things you spend money on and try to find ways to reduce that spending,” she added.
3. Top up your emergency fund
Most financial advisors recommend having enough savings to cover three to six months of living expenses. This might be worth revisiting depending on your specific circumstances.
In that environment, for example, having more than six months can make sense, especially if you think you might have a problem with your job later, Lassus said.
However, it’s important not to get overwhelmed when thinking about achieving this goal.
“Whatever they can put aside will help,” said Lassus, a member of the CNBC Financial Advisor Council.
4. Pay off debt
If you have high-interest debt, focus on paying it down, Deer recommends.
Not only does it help you be prepared for losing your job, but it is also expected that interest rates will rise in response to rate hikes by the Federal Reserve.
According to CreditCards.com, the national average credit card rate rose above 17% for the first time in more than two years due to the Fed’s recent hike. The central bank expects to hike rates further for the rest of the year.
5. Stay invested
Recent market volatility could lead you to consider trimming your 401(k) or exiting the market. However, it’s important to keep your emotions in check and remember that you’re in it for the long haul.
“You should never make an investment decision when you’re panicking or when you’re really scared,” Lassus said. “You have to try to refrain from it in order to make sensible decisions.”
In fact, history shows that bull markets last longer than bear markets, Deer said.
“Economic growth is the long-term trend,” he added. “That’s just a hiccup in this trend.”
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Correction: The 2001 recession lasted from March to October of this year. The chart in a previous version misrepresented the time frame.