| If you believe some very smart guys, there's a recession looming in our near future.
Moody's Analytics' chief economist Mark Zandi cautioned recently that a recession may be coming in the second half of 2023. Meanwhile, Goldman CEO David Solomon says there's a good chance of a recession and so it's time to be cautious because it could make investing and business decisions more difficult. Finally, JPMorgan Chase CEO Jamie Dimon warns that the U.S. is likely to tip into recession in six to nine months.
With all this talk about recession, it may be helpful to know what one is so you know when it arrives. Here goes: A recession is an economic downturn that occurs over a period of time where unemployment rises, and trade and industrial activity decline. While it can vary, a recession typically refers to six or more consecutive months of economic decline. This means a country's gross domestic product declines for two back-to-back quarters, signaling slower or negative economic growth.
It's obvious that a recession can impact your everyday life, personally and financially. So, while it's normal to feel anxious, there are things you can do to prepare.
I reached out to several financial expert friends of mine to weigh in and offer some sound advice.
One said that even if things improve and a recession hopefully never comes, practicing responsible money habits can only set you up for success.
So, here are some ways to prepare yourself for a recession.
The key, my experts say, is to continue to build your savings, re-evaluate your investment plans and find ways to manage debt.
It always starts with your budget (fingers crossed you have created one). Let's assume you did. Now it's time evaluate your budget every month to see what expenses could be trimmed or cut out altogether. Are you spending too much on clothes or nights out with your buddies? Cut them out. Only buy what you need and opt for generic over name-brand products to save a couple of bucks.
After cutting out those unnecessary expenses, my expert friends said you need to increase your savings budget as much as you can. Ideally, 20% of your income should go to your savings, and 30% to "extra" expenses like your subscriptions and memberships. After trimming your extra expenses, set up higher automatic payments to your emergency fund.
Now it's time to track each debt account you have to see how much you owe and your various interest rates. Focus on contributing more of your income to debt that holds the highest interest rates. While doing so, consider paying off tax deductible debt accounts, like educational loans, to get cash back during tax season.
Whether you already have a 401(k) plan set up or not, try to maintain your budgeted contributions. It can be intimidating to put money in while a recession is looming, but keeping up with these can benefit you in the long-term. Some key advice: Whether your investments are doing well or not, avoid making emotional money decisions.
During an economic downturn, avoid putting your finances at risk and prepare for any emergencies. The key is to remain calm and don't panic. Assess your financial situation and by all means, be smart and proactive. That means not increasing your debt, finding ways to pay off debt you already have, not taking on more fixed expenses and being savvy to find fixed expenses that can be eliminated.
For more cool stuff like this, be sure to visit CNBC's Financial Advisor Hub and Personal Finance section. |
EmoticonEmoticon