10 Ways To Help Recession-Proof Your Life

Written by Staff
recession-proof
Image: Autumn Keiko

Whether there is a recession on the horizon or not, some warning bells are ringing. Time to get recession-proof.

One possible indicator of a recession is the sudden decline in spending by the wealthy. There has been a pullback in classic car markets, buying of luxury real estate, fashion, jewelry and art, Business Insider reported. “If high-income consumers pull back any further on their spending, it will be a significant threat to the economic expansion,” Mark Zandi, chief economist at Moody’s Analytics, told CNBC.

Recession warnings are also coming from banks. The risk of a global recession is “high and rising,” Morgan Stanley reported earlier this month in a note to clients.

In the bond market, the 10-year Treasury bond broke below the 2-year rate, causing what’s called an inverted yield curve — an early but reliable (since 1950) indicator of economic recessions, says Sharon Epperson, CNBC senior personal finance correspondent.

Here are some tips to help you get prepared.

Boost your emergency savings

Focus first on putting one month’s worth of living expenses in your emergency fund, says Lauren Anastasio, a wealth adviser at personal finance company SoFi. Then pay off your debt, and then focus on building up a reserve of three-to-six months worth of funds.

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However, the average length of unemployment nationally was 29 weeks after the Great Recession. For workers between age 55 to 64, it was one year, Epperson said.

Seventy-eight percent of Americans live paycheck to paycheck and 47 percent couldn’t come up with $400 of emergency cash without borrowing from someone or selling something, according to Travis Holoway, CEO of SoLo Funds, a mobile peer-to-peer lending exchange.

If you don’t have an emergency fund, start one.

Pay down debt

Specifically, pay down high-cost debt such as credit card balances to create breathing room in your monthly budget. Make two lists — discretionary debt and necessary debt. Discretionary items are most likely ones that you can either eliminate now or in the future, said Greg McBride, chief financial analyst at Bankrate.

Identify expenses that can be cut now or later in the event of a job loss. Paying off your credit cards could bring some peace of mind if you’re worried about job security. Then look at mortgages or car loans before paying off student loans. Student loans have more favorable provisions, making it less urgent to pay them off, McBride said.

Protect your portfolio

You can’t control the financial markets but you can control where you put your money. This may be a good time to think about converting traditional pre-tax IRA or 401(k) money into a Roth IRA, Epperson said. Another option is to switch future 401(k) contributions from a traditional 401(k) to a Roth 401(k). Money in Roth accounts grows tax-free. Having more money in a Roth IRA account gives you flexibility in retirement since there are no required minimum distributions.

If you’ll need money in the next 5 years, don’t have it invested in markets

Whether the financial markets are soaring or we are in a recession, you should not have money invested in them if it is money that you will need in the next five years, says CNBC’s Epperson.

Get cautious with your spending

See what you can cut back on. That may mean eating out less or taking a staycation. You may also want to consider delaying big purchases like a car or home. Unless you pay your balance in full every month, try to stop using credit cards. Pay in cash or with a debit card instead.

Try to build cash reserves to last six to 12 months

Make sure you have cash so you don’t have to sell things at the worst possible time when your stocks, mutual funds or 401(k) have already lost a lot of value, said Diahann Lassus, a member of the CNBC Digital Financial Advisor Council.

Consider tapping into savings you may normally avoid in order to get more cash in hand.

“Nobody wants to reduce their savings to retirement or their kids’ college savings, but sometimes redirecting those savings towards greater amounts of cash or liquidity can do wonders for helping you navigate volatile markets, as well as recessions,” said certified financial planner Douglas Boneparth, president of Bone Fide Wealth and a member of the CNBC Digital Financial Advisor Council.

Put funds in a high-yield online bank savings account and consider opening a home equity line of credit, Epperson said. She suggested DepositAccounts and Bankrate.com as good resources for the best rates on savings and money market accounts.

Focus on what you can control

Like breathing.

Look at incoming money like employment income, and assess your job security. Get your resume in order and start networking so that if a recession hits, you’re not starting a job search with a bunch of other people who just got laid off.

“In a recession, employers are gun shy about hiring. They always prioritize referrals and this is even more true in recession times,” said Caroline Ceniza-Levine, co-founder of SixFigureStart. “Therefore, nurture your network now more than ever. Stay in touch. Be helpful. If you get a lead, share it. If you can make an introduction, do it.”

Ceniza-Levine also suggested networking at your current job, letting more than just your boss or group know your work. “You need to be indispensable,” she told CNBC.

Recessions are hard to predict. “If we think back to 2007, many people asked, ‘How did we not see it coming?’ But that’s the nature of recessions,” said Tara Sinclair, an economics professor at George Washington University, in a Bankrate interview.