For many Americans, the memory of the last recession still weighs heavily on their minds. And while most people know that recessions are a normal part of the financial cycle, they're still a real challenge to face.
The good news is that while you cannot stop a recession from coming, you can plan ahead to weather it better. How? Here are five things you can start doing today.
Gain Valuable Skills. If you worry about losing your job during a recession, now is a good time to build skills and new roles. Look for other positions in your field that are worth more than yours, and pursue the certifications or training that would help you get them. Take the initiative to become more visible in your company, taking on leadership roles where possible. And develop a network for future use.
Trim Your Budget. When things are going well financially is the time to shed extra debt and make changes to your lifestyle while you still have room to maneuver. Scaling down your expenses is a long-term project for most people, so start now and be determined to continue to make improvements.
Get an Emergency Fund. While you're slimming down expenses, you'll have more money to put away for a rainy day. Many experts suggest beginning with an emergency fund goal to save up the equivalent of three months' worth of necessary expenses. You should continue to expand this, particularly if your family relies on a single income, works in an unstable or cyclical industry, or is planning significant changes.
Assess Your Goals. You'll be less worried by short-term upheaval in the stock market or rates if you are comfortable with your long-term plan. Meet with a financial planning specialist to assess your financial goals and how to stay on track to meet them. If you're saving for retirement, for example, remember that you won't access that money for a long time. If your goal is shorter, like buying a house, you may want to adjust the contributions or risk to account for market downturns.
Know Your Risk Tolerance. If you become easily stressed by the thought of a recession, you should minimize your risk even now. This could include moving assets to a less-risky portfolio or seeking a field with more recession-proof work. You could also build up liquid assets that you can access in an emergency or lower your expectations for withdrawal during retirement. If, on the other hand, you have a higher tolerance for risk, a recession will be a good time to buy stocks at a discount.
Start your recession planning by visiting a qualified financial planner. They will help you formulate goals and decide how you can meet them no matter whether there are good times or tough times ahead.