A lot of Americans today are already prone to the financial ruin that a potential emergency situation might bring. Imagine how they’d fare when another recession hits the country’s economy.
While one can never really fully save their finances from losses caused by a recession, people can still benefit from taking some preventive measures they can employ in the present to lessen the blow.
Shift Your Attention on Factors You Can Control
It’s not ideal to have to look for a new job during a recession after being laid off
No one person has control over where the economy is going, so it’s better to focus on things that one can actually control. This means taking an honest look at one’s current investments, savings, and even spending habits. But before all that, you should assess your income and its source first. How much job security do you currently have in your current employment?
To address the possibility of losing one’s primary source of income when a recession hits, Caroline Ceniza-Levine, a career expert, suggests that people ‘nurture their network’. What more, one should find ways on how they can be indispensable in their current job.
Another precaution one can start doing in preparation is padding up their savings. This can be done through the reevaluation of one’s spending habits and cutting down on unnecessary expenses to put aside. Unfortunately, this also means needing to put off purchases like a home or a new car.
Get Your Finances In Order
Put your saving habits into overdrive to build an emergency fund fast
Aside from saving, one should also set aside some money for an emergency fund. Most financial experts deem having up to six months worth of expenses as a good rule of thumb when determining how much to keep in the fund.
However, one should keep in mind as well that unemployment time lasts longer during recessions. Considering this, experts at the business news publication CNBC suggest padding up the emergency fund to last up to 12 months. This way, you won’t need to sell your things for cash when most of your investments’ value has already gone down.
One may also want to consider accessing their savings to have some cash which would help one in going about recessions and volatile markets. These funds can then be temporarily put into money market and other high-yield bank accounts.
Protect Your Retirement Plan
Determine which retirement account would give you more flexibility in the future
Meanwhile, CNBC also says that financial advisors suggest people to think about converting their IRA or 401(k ) into a Roth IRA as the money in this type of account can grow tax-free.
In the end, though, one should still refrain from investing money in anything if that money would be needed during the next five years or so whatever the current economic conditions are.
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