7 Ways To Protect Yourself From A Recession
7 Ways to Protect Yourself from a Recession
Just the word “recession” is scary for most of us, but you can put many of your fears to rest. By adopting these seven basic principles into your life, the pain of a recession can be largely minimized.
- Live within your means. Living within your means daily is another way to say that you should never need any additional consumer debt. Once you begin creating debt, more inevitably seems to follow. For example, gas prices may be high, but buy that gas with a credit card at 27%, and you’ll see just how expensive it can be.
- If you have a two-income household, try to learn to live off just one income. Think of the retirement you could fund with the other income. And if one of you should lose your job, you’ll already be living on one salary.
2. Have a second source of income (or a third or a fourth). A second income source is always good, even if you just put in a few hours here and there. Job security is practically nonexistent now, and an additional source of cash flow increases your financial security.
3. Keep a long-term perspective with investments. Expect that there will be periods when your investments will lose money. But you only indeed lose money if you sell. The economy almost always improves over time, so you’ll make back all your money and then some. in fact, a recession can be the perfect time to invest money.
- Moving your money into more liquid and lower-risk investments as you get closer to retirement age. Otherwise, you may need more time to recover from market downturns before you require access to that money.
4. Consider your risk tolerance. All the financial gurus have tons of charts and graphs that tell you how much of your money should be invested where based on your age. But you may need to adjust your asset allocation if you aren’t sleeping well because your portfolio is down 12%. On the other hand, you should feel secure in your investments and not be in a state of panic.
- Don’t sell while the market is significantly down, but when things improve, you can move some of your assets into bonds or more stable blue-chip stocks.
5. Diversify your portfolio. Keeping your money in different investments will lower stress and theoretical losses. You’ll also be less likely to do something impulsive. You don’t have to get carried away; something as simple as dividing your money between your home, savings account, bonds, and stocks is sufficient.
6. Maintain a good credit score. In a recession, qualifying for credit can be challenging enough already. If you want to purchase a house, get a new credit card, buy a new car, or in some places, even rent an apartment, you need to maintain your credit scores. Pay your bills on time and keep your credit card balances as low as possible.
7. Keep an emergency fund. An emergency fund is an essential part of any financial plan. There are many reasons for this. For example, if someone loses a job, money is available that won’t result in an investment loss if used.
- You never know when the unexpected may happen. What if your car needs a new transmission? Do you want to be forced to sell some stock that will realize a 25% loss? What if you need money immediately?
Some assets can take time to liquidate. And you may need even more time before you can access the funds.
The best part about these suggestions is that they’ll always serve you well, not just during a recession. Recessions are never easy, but making small lifestyle changes will ease your burden and reduce financial stress.
“If you want to thrive in today’s economy, you must challenge the status quo and get the financial education necessary to succeed” — Robert Kiyosaki
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The information contained herein is subject to change without notice. This material is provided for general and educational purposes only; it is not intended to provide legal, tax, or investment advice or to avoid penalties that may be imposed under U.S. federal tax laws. Contact your tax professional, attorney, or investment advisor regarding your legal, investment, or tax situation.
