5 steps to prepare in case of recession

All the talk about a looming recession may have you worried about your finances. You aren’t alone. Some 74% of US consumers are concerned about a recession, according to a new survey from Empower and Personal Capital.

The odds of a recession vary, depending on whom you ask, with Goldman Sachs pegging it at a 30% probability within the next year and UBS standing by its base-case forecast of “no recession.” Meanwhile, Ark Invest CEO Cathie Wood and Wharton finance professor Jeremy Siegel believe the U.S. is already in an economic downturn.

Whether a recession is near, or a bit further away, here’s what you can do to prepare.

1) Update your resume

The labor market has been hot for job seekers, but that will change if a recession hits.

So it’s smart to update your resume now so you are ready if there are layoffs.

Also, if you have considered going back to school to get an advanced degree or improving your work skills, now may be the time to do it.

2) Reduce expenses

Start to look at where you can cut back on spending, Lassus suggested. Think about where you want your budget to be for a worse-case scenario and a best-case scenario, she said.

“You have to think about the ‘what ifs,’” Lassus said. “What if my income goes down? What if my car breaks down? What if my rent goes up?”

“Start looking at all of those interesting things you spend money on and try to find ways to reduce those expenses,” she added.

3) Bulk up your emergency fund

Most financial advisors recommend having enough savings to cover three to six months of living expenses. That could be worth revisiting depending on your specific circumstances.

However, it’s important not to get overwhelmed in thinking about reaching that target.

4) Pay down debt

If you are carrying any high-interest-rate debt, start focusing on paying it down.

Not only will it help you be prepared if you lose your job, but rates are also expected to move higher in response to rate hikes by the Federal Reserve.

5) Stay invested

Recent market volatility may have you considering cutting back on your 401(k) or getting out of the market. However, it’s important to keep your emotions in check and remember that you’re in it for the long term.

“You never want to make an investment decision when you panic or when you are really afraid,” Lassus said. “You have to try to step back from that, to make reasonable decisions.”

In fact, history shows that bull markets last longer than bear markets, Deer said.

“Economic growth is the long-term trend,” he added. “This is just a hiccup in that trend.”

Source: CNBC