The signs are pointing to an economic recession. President Donald Trump’s tariffs and trade war with China, including his Twitter tantrums, are disrupting an already tumultuous roller-coaster ride of the U.S. and global stock markets and economies. Some financial analysts think the U.S. economy will continue its path of increased consumer spending and economic growth. However, other financial experts believe a recession is inevitable within the next 12 to 18 months.
An economic recession is defined as “a period of temporary economic decline during which trade and industrial activity are reduced in two consecutive quarters.” This means that during this vicious downward economic cycle, consumer spending drops, which increases business losses and leads to layoffs or furloughs. Meanwhile, unemployed workers reduce spending and default on loans and credit cards, which cause more business losses.
Whether you are feeling the purse strings pinch or you want to ensure you are financially prepared for an economic recession, here are five money moves you should start now.
How to Prepare for a Recession
1. Stash Cash
During a recession, budgets get very tight for most consumers and savings are minimal or nonexistent. Set up an automatic transfer or direct deposit to an interest-bearing account, like a savings or money market account. Make sure the account is not easily accessible in the event you feel the temptation to spend the available cash. This extra cash will be a lifeline when the economy is momentarily sinking.
2. Invest in Safety-Net Expenses
Since people tend to stay in their homes and keep their vehicles longer during a recession, appliance or vehicle breakdowns are inevitable. Safety-net expenses are often overlooked or cut when cash is low. However, home warranties, cell phone insurance, or vehicle repair service contracts, like Toco Warranty, are examples of safety-net expenses.
Invest in affordable month-to-month or pay-as-you-go safety-net expenses to protect your budget from unplanned massive repair expenses. Having these types of coverage in place will ultimately save hundreds to thousands of dollars on expensive significant repairs or replacements
3. Slash Excessive Convenience and Luxury Expenses
Luxuries like the monthly massages, pricey self-care traditions, and eating out enrich our lives. These types of enrichment expenses can also put a significant dent on the bank account balance. Convenience is the new luxury expense that can be costly as well. Convenience fees like ATM fees, delivery fees, processing fees, etc. add up. Minimize convenience and luxury expenses to free up extra cash for the emergency saving fund. Establishing a new spending behavior now will help when living through a temporary economic downturn.
4. Start a Side Hustle
“I have multiple streams of income because I have multiple streams of bills and dreams.” – Madam Money
A full-time job with a good salary and benefits is excellent. However, becoming a DUALpreneur® (having a side business) will complement the monthly income to help save more, pay down debt faster, or offset income disparities caused by a furlough or layoff. Monetize your talents as a DUALpreneur® with a side business to save the day when the economy becomes the villain.
5. Update Your Résumé
During the economic free fall of a recession, to reduce the impact of business losses, companies cut major expenses. One of the first cost cuts is salary and benefits.
Even if you are not in the market for a new job, review and update your professional résumé in the event of an unexpected layoff. Also, consider other industries that match your skillset and professional accomplishments.