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Depending on who you ask, it’s not a question of if, but rather when, the United States will enter a recession in the near future. Certainly, many economic indicators are pointing in that direction.
While no one can say for sure what the future will bring, it’s best to heed the warning signs. Here are some of the best tips from Forbes Advisor and finance experts to help you prepare for a recession.
Table Of Contents
Manage Your Money Wisely
Your chances of successfully weathering a recession are higher if your financial house is in order. If you’ve been taking a lax approach to your money, start with these essential tasks.
1. Create a Budget
Having a budget is money management 101, and something that can benefit every household. It gives you a “good sense of what it costs to run your life,” according to Sara Stanich, founder of financial planning firm Cultivating Wealth in Montauk, New York.
Budgeting doesn’t have to be difficult, and it can be accomplished in seven simple steps that cover the process of adding up your expenses and income and then reconciling the two. There are also multiple ways to implement a budget, so explore your options to determine which one appeals to you most.
2. Eliminate As Much Debt As You Can
As interest rates climb, so too does the cost of debt. And if you’re spending a large portion of your income on credit card and loan payments, that leaves little to save for a rainy day. Eliminating debt is an important part of how to prepare for a recession, and a debt snowball can be an effective method to use.
Of course, not everyone will be able to get out of debt before a recession hits. “If you do carry a balance, it’s good to (find) a low-interest, fixed-rate offer,” Stanich says. However, offers like this are typically reserved for applicants with very good credit.
Consolidating debt to a fixed rate loan may save money on interest and can also make for predictable monthly payments, which can help with budgeting during a recession.
3. Create an Emergency Fund
Recessions are often marked by job losses, so now is the time to shore up your cash reserves.
“Think about giving yourself [enough savings to cover] a couple of payrolls,” says Amy Mosher, chief people officer at Isolved, a firm providing workforce management solutions. If necessary, consider pulling back on your 401(k) contributions temporarily to build up …….