How to Prepare for a Recession

A common question clients ask their financial advisor is, “Are we going to have a recession?” The easy answer is ‘yes’ since economic recessions occur frequently. However, it is much harder to predict when a recession might start or how long it will take for the economy to recover from an economic slowdown. Since we will inevitably experience downturns in the economy, it is essential to prepare ahead of time to protect against the financial impact.

5 Tips to be Recession Ready

Here are some tips to help get through a downturn in one piece financially.

• Start or add to an emergency fund of cash. Having at least 3 to 6 months of living expenses in a safe and easily accessed savings account can protect against job loss. Try to build this fund over time to cover 12 months of living expenses.
• Reduce your debt. Work to pay off debt, starting with the highest interest accounts first. As you reduce your debt load, saving short-term into an emergency fund and long-term into investments will be much easier.
• To accomplish the items above, it would be very constructive to develop a spending plan or budget so that you know where you are spending your hard-earned income. In addition, it is essential to living within your means to create a buffer to help make it through financial challenges and save for retirement or other long-term goals.
• Keep your job skills up to date or even develop additional skills. Recessions often bring layoffs or permanent job loss, so be prepared. You might also consider ways that you can create other streams of income if you lose your job. In the past, many new businesses or careers have begun during tough economic times. 
• Evaluate your long-term investments. When markets are down, it is challenging not to react and sell at low prices, which lock in losses. It is also easy to be complacent when markets are up to assume good times are permanent and fail to rebalance your investments. A portfolio allocated to providing long-term returns is essential to weathering the inevitable market drops and economic downturns – one that will help you reach your goals with as minimal risk as possible. It is beneficial to find a trusted advisor to work with who can keep you and your investment plan on track long-term.

As stated before, yes, we are going to have a recession. However, when it starts and how bad the economic impact will be is not possible to predict. Therefore, the time to prepare is today.