You’ve probably seen the headlines: layoffs, sweeping reciprocal tariffs and a shaky stock market. Analysts at J.P. Morgan are predicting a 60% chance of a recession by the end of the year, up from a 40% chance anticipated earlier.
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With all that’s happening now, it’s reasonable to worry about a potential recession. But instead of panicking, it’s time to prepare. Here are five recession money rules you could consider following now.
Also see five money mistakes the middle-class should avoid in a recession.
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Shore Up Your Emergency Fund
Cash is king during a recession. In the event of a layoff or an emergency expense, you need to be able to cover your monthly expenses without relying on credit cards or tapping into your retirement accounts.
While experts often recommend saving at least three to six months’ worth of living expenses in an emergency fund, aim for six to 12 months’ worth or even more if you can. To hit this goal faster, adjust your budget, delay major purchases and cut discretionary spending.
Make sure you keep your emergency fund in an accessible account. Consider a high-yield savings account that grows your idle cash. Money market accounts and certificates of deposit are also good options.
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Prioritize Getting Out of Debt
When the economy slows down, debt can become burdensome, especially if you have high-interest credit card debt. That’s why getting out of debt should be a priority. You don’t need to be 100% debt-free to weather a recession, though. The goal is to reduce your financial burden down the road.
Remember that every dollar you free up from monthly debt payments is a dollar you can use to cover essentials or invest in your future.
Start a Job Search Before You Need It
One of the biggest mistakes people make during uncertain economic times is waiting until they’re laid off to start hunting for a job. During a recession, companies trim budgets, reduce workforces and freeze hiring. The best way to prepare is by planning for a job loss before it happens.
Revamp your resume, update your LinkedIn profile and actively network to expand your professional connections, which could potentially open doors for new opportunities. Most importantly, stack skills. Even if you’re happy at your current job, the earlier you prepare, the better.
Build Multiple Income Streams
Relying on one income source is risky. Consider building multiple income streams. Whether it’s freelancing, consulting, renting out a spare room or having a gig economy side hustle, like ride-sharing or food delivery, having alternative sources of income will give you peace of mind.
An extra $100 each month can be a game changer during an economic downturn, helping you avoid draining your savings or racking up debt.
Invest for the Future and Don’t Panic
It’s tempting to pull your money out of the stock market when your investments are taking a hit. However, history shows that panic-selling almost always hurts more than it helps. Recessions come and go; markets always recover.
Market downturns often create the best buying opportunities. So use this time to buy the dip and invest in high-quality companies. And if you’re risk-averse, consider investing in low-cost index funds and exchange-traded funds. Decades from now, you’ll be happy you stayed the course.
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Source
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J.P. Morgan, “The probability of a recession remains at 60%.”
This article originally appeared on GOBankingRates.com: 5 Recession Money Rules To Start Following Now
