How to Prepare for a Possible Recession

1. Pay down debt

Ask anyone what they would do if they inherited a vast sum money. Or struck gold in a Powerball drawing. A popular answer is to pay off bills. Being debt-free is an admirable and attainable goal that gives individuals a great sense of peace. As you work toward that goal, make every attempt to stay current on your monthly payments. It’s normally a smart decision to pay extra each month – especially on high-interest, revolving credit cards. But if you are in a financial bind, you may want to consider paying only the minimum each month.

2. Avoid knee jerk reactions

If you own stock, or have money in a mutual fund, resist the temptation to sell everything when the market is in freefall. Similarly, resist the urge to buy at bargain basement prices. Wait until the waters are calmer before you take a plunge.

3. Push the pause button

Resist impulse buying – especially big-ticket items – as this can destroy your budget. For example: if you are thinking of purchasing another vehicle because yours needs repairs, get some estimates from reliable mechanics. If the quotes are substantially lower than the price of a new or used one, delay the purchase until the economy settles down.

4. Hands off your retirement accounts

That nest egg is for your golden years, so let it alone and it will grow. Also, if you are having money automatically withdrawn from your paycheck for a 401(k), it’s best to continue making those retirement contributions. Note: taking an early withdrawal from a 401(k)-retirement account may not even be possible, as you must meet certain qualifications. If you do take an early withdrawal, the Internal Revenue Service will charge you a substantial penalty.

5. Track your expenses

When you categorize your expenses, such as mortgage/rent, utilities, food, and bills, you will get a better sense of where your money is going. If you have a large list of expenditures that are miscellaneous, decide what needs trimming. This exercise will help you stretch every dollar further.

6. Consider picking up a side job

Recession or not, people will still pay someone to babysit, walk their dogs, or maintain their lawns. Retailers and restaurants typically hire seasonal workers and may offer flexible schedules. Delivery drivers are also in high demand.

7. Monitor your thermostat

Instead of raising the thermostat this winter, bundle up. According to the Department of Energy, you can save as much as 10% a year on heating and cooling by adjusting your thermostat down 7°-10°F, from your normal setting for 8 hours.

8. Develop a savings plan

When you are pummeled by the tsunamic-like waves of inflation and are desperately trying to get to the safety of the shoreline, you may think it’s not a good time to save money. This step builds on the ‘track your expenses’ step. Once you conduct your money scavenger hunt, you will probably find some extra dollars. And if you don’t save them, you may purchase non-essential items. It may be a good time to take a look in the rearview mirror; if people had been preparing for dark days by building an emergency fund, a recession would not be so painful.

9. Obtain a personal loan

Most households have more than one credit card and have accumulated more debt that they realized. And now that Fed Chair Jerome Powell hiked rates again on November 2, 2022, the interest charges on these cards will continue to creep up. This is one reason why a personal loan is so attractive: If you qualify, your interest rate is locked. It will not increase for the duration of the loan. Further, a personal loan will allow you to payoff other debt, so you have only one bill to pay instead of several.