You likely saw this in the news, but a couple of weeks ago, the Federal Reserve increased interest rates by 0.75 percentage point, the third hike this year and the largest since the 1990s. While a recession is not necessarily inevitable, let’s make sure you are prepared for one in case it becomes a reality.
But first–let’s go through what a recession would actually look like, from price of goods to the Stock Market.
Recessions typically last 8 – 18 months. On a day-to-day level, this is how a recession could impact Americans:
- Inflation continues. As we have all seen costs continue to rise, we could see this trend into a recession.
- Job losses are expected. During recessions, job losses are expected, and the unemployment rate is expected to rise.
- The Stock Market could take a hit. In most recessions, the Stock Market tends to fall. Remember that investing is a long-term strategy for building wealth. Think about it like the Stock Market is on Sale.
- The Housing Market is likely to shift. While this should not look like 2008, the housing market is most likely going to cool off, and prices will begin to reflect this change.
So even though it may sound very difficult, there are things you can do right now to put you and your family in the best defensive position possible to handle a recession.
Here are some of the ways my clients are preparing their family’s finances.
First and foremost, you want to improve your cash flow. Nothing provides protection against a recession like having money in the bank! Review your current expenses and see where you could make some lifestyle cuts. If you did have to cut back dramatically, how would you do it? Examine your budget now and find ways to improve your cash flow.
Next, you will want to prioritize your sinking funds, especially ones that would cover you in case of job loss. Create a plan to create an Emergency Fund that could provide 3-6 months of living expenses if you were to need it. This will give you incredible security if a recession does hit!
Finally, I want to encourage you to be wary of accepting any further debt in the coming months. When times are good, a debt can easily be seen as a monthly payment. But in down times, debt can truly be a strain on your family’s budget.
In the coming months, I will be sharing more tips to help protect your family if we should go through a recession, but in the meantime, please don’t hesitate to reach out if you have any questions at all.
I am here to help you!
