How to Prepare Your Finances for the Coming Recession

When a recession is near, it's important to focus on preserving and protecting your finances by preparing. This can involve increasing emergency savings, paying down high-interest debt, and re-evaluating spending. Diversifying investments and seeking professional advice can also help to minimize financial risks during a downturn.

Another strategy to consider is to reduce your exposure to volatile investments, such as stocks, and increase holdings in safer investments like bonds, CDs or savings accounts. This can help to reduce the impact of a potential market decline and provide a measure of stability during an uncertain economic climate. Make sure to consult a financial advisor before making any changes to your investments.

Certificates of deposit and savings accounts are paying the highest interest rates in over a decade, making it a safer alternative to the equity markets. Current CD rates on 12-month CDs and savings rates are above 4.00 and moving higher. You can use a also CD calculator to figure out how much interest you can earn over the CD term.

It's also important to be mindful of your spending habits and prioritize necessities over luxury items. This can help to reduce debt and increase overall financial stability. You will be surprised how much you can cut back if you take the time and effort to look at your spending habits.

Steps to Take with Your Finances to Prepare for a Recession

1. Increase emergency savings: This means setting aside money in a savings account or other liquid account that can be easily accessed if necessary. The amount saved should be enough to cover at least 3 to 6 months of living expenses in case of a job loss or reduced income. This helps to provide a safety net in case of unexpected events or emergencies. Online savings rates are higher than traditional brick and mortar bank savings rates.
2. Pay down high-interest debt: This refers to paying off debt with high-interest rates first, such as credit card debt or personal loans. This reduces the amount of interest paid overtime and can help lower monthly payments. It's also a good idea to consider reducing or consolidating debt to lower overall interest costs.
3. Re-evaluate spending: This involves looking at your monthly expenses and identifying areas where you can cut back on non-essential spending. This can include reducing discretionary spending on items such as entertainment, dining out, or travel. By reducing spending, you can increase savings and improve overall financial stability.
4. Diversify investments: This means spreading your investments across different asset classes such as stocks, bonds, real estate, and commodities. This helps to reduce the risk of loss from one specific investment and provides a more balanced portfolio. It's important to consider both short-term and long-term goals when choosing investments and to seek professional advice if needed.

It's crucial to be proactive and take control of your finances at any time but especially when a recession is near. Making these changes and taking the necessary steps to protect your finances can help to minimize the impact of an economic downturn and improve your financial prospects in the long run.