According to new data, 69% of households in the U.S. are preparing for a possible recession on the horizon.
The rate of economic growth is declining. The current cycle is the longest running in history, and this has investors and families worried about an eventual downturn. While a recession is highly unlikely in 2020, it could become more of a reality in 2021 and beyond.
Here’s how to prepare for the worst.
Start Building an Emergency Fund
For most Americans, the worst outcome of a recession is job loss. Building an emergency fund can prepare you for the unknown. It’s recommended that cash savings are used so avoid CDs and other accounts that limit withdrawals. Shop around for a savings account that offers flexible terms and a mild interest rate.
Your emergency fund should cover at least six months of essential spending like mortgage, utilities, groceries etc. If you hit your target, keep saving. The more cash you have available, the more resilient you will be when the economy changes course.
Upskill in Your Field
Jobs can become highly competitive during a recession. Employers typically look at staff levels first when they seek to cut costs.
Upskilling in your field may provide some protection if layoffs occur. Diversify your skillset, get a new industry-focused qualification, or position yourself as an expert within your business.
Expand Your Income Sources
Explore all potential options to expand your current income. If you currently generate income only from employment, you will be at high risk of financial difficulty during a recession. Stocks, government bonds, and long-term savings deposits can all help.
While a CD (Certificate of Deposit) doesn’t work as an emergency fund, it can become a source of income during a recession. Certificates pay regular interest and that interest is locked in from day one. Banks can’t change the return during the term. CDs are federally insured so you won’t lose your money during a downturn.
Stocks are likely to decline during a recession but building a dividend portfolio can still help to provide some income. The upside is that stocks will likely become more valuable when the economy picks back up.
Don’t Overreact in the Meantime
A loss of consumer confidence can contribute to a recession, so it’s important not to overreact. Understand that the economy is still growing today. Take steps to safeguard your financial future so that you’re always prepared for the worst.
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