One of the words that is being tossed around with increasing frequency is “recession.” And the question becomes this: can your personal finances survive a recession? Heavy debt and low savings are just the things that can cause you money problems during a recession. But there are some things you can do now before the recession really hits, to shore up your personal finances. And if the recession never hits? Then you are that much more ahead financially.
Four things that can help you prepare your personal finances for a recession
There are four main things you can do to prepare your personal finances for a recession:
- Get out of debt. This is very important. You need to work hard to reduce your overall debt level. Pay down balances as much as you can. Put together a debt reduction plan that will help you dramatically reduce how much you owe to others. Debt can be a major problem during a recession, and if you have a lot of it, it can become difficult to take care of your other needs.
- Build up an emergency fund. You need to build up an emergency cash fund to help you if needed. This is true of any time, but especially true in the run up to a recession. While you probably can’t just set aside three to six months’ worth of salary now, you can build up a reserve. Every little bit helps, and the important thing is to get into the habit of saving.
- Consider blue-chip stocks. CNN Money points out that now is not the time to freak out about the stock market. Indeed, there is a good argument to buy, while prices are low. Here is what Walter Updegrave says on CNN Money:
“But remember, the shares you buy while the stock market is down will likely be the ones that will have generated the biggest gains a decade or more down the road. And the money you invest during market setbacks could very well provide the spending cash you’ll need in your later retirement years.”
Choose solid stocks that are likely to make a good recovery. They may not offer sexy returns right now, but they are the tried and true that will recover from a recession.
4. Consult a professional. A fee-based financial planner can help you chart your path.
If you plan carefully now, and take the appropriate steps, your personal finances should be able to survive a recession.