The United States economy has contracted for two quarters back to back. The federal reserve is increasing the interest rate, making borrowing costs more expensive. If you carry any credit card balance, you get to pay a higher fee to the bank for not paying off your credit card balance at the end of each month. Inflation is at the highest we’ve seen in forty years. Businesses are announcing hiring freezes, and some are even going as far as laying off their workers.
According to a survey published on CNBC, 66% of Americans are now worried that a major recession is right around the corner. I always encourage people to focus on what they can control; none of us can control the global economic challenges that the world is facing today, but we can prepare our finances, to mitigate the impacts of these external forces on us.
Experts are not always right; no one is sure of how long the current economic slowdown will last. Ironically, it is a known fact that more millionaires are produced as an aftermath of an economic slowdown. I want you to thrive and capitalize on opportunities that often come during the economic downturn.
Here are some things you need to do to prepare for and thrive in a recession.
1. Boost your emergency savings: If you do not have an emergency fund, this is an excellent time to consider having one. Experts recommend having 6-8 months of your monthly expenses in an emergency fund. If you already have up to six months, you can consider boosting it to cover your living expenses for a whole year.
2. Pay off your debt: If you have any credit card, consumer debt, or high-interest debt. As interest rates go higher, it will become more expensive to service your debt. Paying off your debt will enable you to keep back your hard-earned money, so ensure you get out of high interest debt.
3. Don’t sell off your investment: As you watch your investment portfolio go down, you may be tempted to want to jump off by selling your stocks. That is a big mistake, one you will come to regret. It is the wrong time to sell your investment, especially if you are young and have time on your side. Based on over eighty years of record, the US stock market has always recovered and come back even stronger after a bear market condition.
4. Invest consistently through the down markets: We often happily dole out our money to buy items on sale, but we hold back when the market crashes. It is a good time to invest because shares of companies are now cheaper than they were about a year ago. Use the concept of dollar-cost averaging to your benefit to buy low when the market is down. We don’t know how long it will continue to stay low, so don’t miss out on this opportunity.
5. Start a side gig: If you have any skills, it may be a great time to explore ways to market your skills and make money outside your primary job. You can always start another your five to nine, at the end of your employer nine to five, only this time you are the CEO of your business and you are building a financially secure future for yourself.
Finally, no matter what is on the horizon, it is never a bad idea to ensure you stay disciplined with your money so you can weather any financial storm that may come with the pending economic downturn.