As Recession Concerns Rise, 8 Expert-Backed Moves Can Help Strengthen Your Finances
Worrying about a recession can make it tempting to overhaul your finances all at once. But financial experts say the better move is to strengthen the parts of your financial life that could become vulnerable if income drops, expenses rise or markets turn volatile.
That means looking beyond a generic emergency fund and focusing on cash flow, debt, liquidity, fixed costs and other pressure points that can make a household less resilient.
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Here are eight moves to make if you’re worried about the economy.
1. Stress-Test Your Income
Financial experts say that if you’re worried about the economy, start at home.
“What would happen financially if you couldn’t work for six months?” said Christina Mehltretter, financial advisor and COO at Carolinas Financial and Retirement Planning.
Answering that question, she said, means checking how much paid leave is available, what benefits or insurance coverage are available, and how much you already have in cash reserves. That will also give you a snapshot of your current financial position, where the gaps are, and what resources might be available to fill them.
2. Build Emergency Savings
Building emergency savings provides liquidity when income or expenses become unpredictable, said Christopher Stroup, a certified financial planner and president of Silicon Beach Financial.
If you’re unsure of where to start, Fidelity recommends keeping emergency savings readily available and separate from everyday spending, such as in a savings or money market account. However, make sure you don’t tie up your cash in accounts that charge penalties or delay access if you need your money.
3. Stop Relying on Credit
“If there’s one thing I could get through to every single consumer, it would be to stop treating your credit cards as your emergency savings account,” said Michael McAuliffe, president and founder of Family Credit Management.
McAuliffe explained that creditors can reduce limits or close accounts, while charging emergencies to cards can add high-interest debt at the same time your finances are already under pressure.
He also recommended planning ahead for predictable expenses such as car repairs, school fees and home repairs.
“The more of these you can handle with your own money, the less vulnerable you are if the economy crashes or your personal situation changes for the worse,” McAuliffe said.
4. Cut Fixed Commitments
Skipping the $6 daily latte might be one place to save money. Of course, some financial experts say that might be the wrong place to look.
“The real financial vulnerability lives in your large, recurring fixed commitments: the upgraded mortgage, two expensive auto loans, private school tuition and country club memberships,” said Mark Clark, a CFP and founder of Prestige Advisors.
Instead, Clark advised focusing on those large recurring expenses that are harder to change quickly if income falls.
5. Preserve Mortgage Flexibility
Cash tied up in home equity is harder to access during a financial squeeze. That’s why Roland Chow, financial planner and portfolio manager at Optura Advisors, said aggressively paying down a mortgage during uncertain times can reduce flexibility.
“The household is cannibalizing their own flexibility and liquidity that they might need if the economy and their finances go from bad to worse,” he said.
6. Plan for Known Expenses
Look ahead at major costs you already expect over the next year, including a vehicle, home repairs or a move.
Mehltretter said reviewing those expenses now can help determine whether the money set aside for them matches when it will actually be needed.
7. Protect Retirement Savings
Economic anxiety can tempt people to pull money from retirement accounts for immediate relief.
However, Kathy Gilchrist, a fractional chief financial officer, said withdrawing from a 401(k) can leave a household less secure later when that money is needed for retirement.
8. Ignore the Headlines
“The biggest mistake is letting fear turn a long-term financial plan into a short-term reaction,” Stroup said. That can include selling investments after markets fall or making major financial changes based on forecasts.
“Avoid making irreversible decisions based solely on headlines or predictions,” Stroup said. “Use concern as a prompt to review your financial plan, identify vulnerabilities and make targeted adjustments where they actually improve your position.”
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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