flyingpainfully and fears of an impending recession make many Americans worried about their financial security.
“If you have inflation and recession combined, it’s a whole different beast,” said Sam Zimmerman, CEO of Sagewell Financial, a banking company aimed at seniors. “This is a time for action. The faster you act, the more ability you will have to reduce the impact of a recession.”
Given the bleak economic outlook, what should you do with your money and how can you prepare for a possible recession?
First, don’t do it
While there are cash moves you can make to help tackle awhich generally should not include stock market redemption.
“The worst thing people can do is get nervous and take money out of the market,” said Jordan Rippy, a personal finance expert and professor of accounting at the Johns Hopkins Carey Business School. “Most people should invest in the market for the long term.”
cut your budget
Instead, look for ways to reduce your monthly budget. This could mean selecting things like subscriptions andin addition to negotiating discounts on your cable, cell phone and other bills.
“Account trading services are a way to reduce your costs, which is a simple way to fight inflation,” Zimmerman said.
Make a spreadsheet of your expenses or use a budgeting program like Mint to organize and reduce your recurring costs.
“If someone spends everything they bring home, it shows what they’re spending on and it can get more granular looking at a bank account spreadsheet,” said Lisa Featherngill, national director of wealth planning at Comerica Bank.
pay your debt
It is expensive to carry debt in an inflationary environment. In particular, you want to pay off your credit card debt – or any type of debt with a variable interest rate – right away. That’s because those interest rates will go up and add more debt.
“If you carry a balance on your credit card past the due date, you’re paying 15% to 25% interest, so that’s a very expensive type of debt that you’re carrying,” Rippy said. “There’s no benefit to carrying credit card debt – it’s a perpetual drain on your personal economy.”
“You don’t want to drag debt into a higher rate environment or an environment with more economic uncertainty,” added Greg McBride, chief financial analyst at Bankrate.com. “If the economy goes into recession, you might work fewer hours or not have as much money coming in, but often the debt payments are still there. Any debt you can get rid of now helps put you in a better position if leaner times are ahead.”
Loans with fixed interest rates, such as student debt or mortgages, are generally less onerous.
“[Fixed-rate] debt is anchored in inflation when it wasn’t high, but your other expenses are higher. It’s a little difficult to pay off your debt in this context,” Zimmerman said. “In a simple case, you could have a 2% mortgage that is fixed and inflation is 7% to 9%. As things get more expensive, your debt stays the same.”
Keep contributing to your 401(k)
Don’t press pause on retirement savings. In fact, if possible, keep the same fixed percentage of your income in. Even if the market is volatile, your assets will grow over time if you don’t try to time the market.
This approach, known as dollar cost averaging, ensures that people see beyond the usual dizzying swings in the stock market and keep building their nest egg.
“There are no silver bullets or magic tricks in personal finance,” Rippy said. “It’s a long game, and people need to keep pouring their money into their retirement accounts like they’ve been doing. Keep pouring money in there and let it grow.”
If you want to invest in more recession-resistant sectors, gold and commodities like alcohol tend to be relatively safe, according to Zimmerman.
“People tend to drink when they’re happy and when they’re sad, so alcohol is an industry that tends to be recession-proof,” he said.
On the other hand, highly speculative care.
Create new revenue streams
Try to diversify your sources of income so that if your business shrinks and you lose your job, you still have money coming in.
“This is the time for a part-time job or hobby that you want to turn into something more. There’s a lot of value in having multiple streams of income when there’s uncertainty,” said Zimmerman.
If you’re creative, you can turn to a platform like Etsy and sell homemade products. You can also sell unwanted household items and clothing on sites like Ebay orlike Thredup.
“You’re taking assets that are simply going down in value to make money and clean your house at the same time,” Zimmerman said. “A lot of people have a lot of stuff lying around, and if you have something of value, you can almost always sell it.”