Finance

Recession Proof Your Finances

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Economists are predicting a recession by 2021- are you ready?  Here are tips for ‘recession proofing’ your job, investments and personal finances.

 

“A National Association for Business Economy Survey found that while economists are modeling a 20% chance of a recession by mid-2020, the odds are 69% by mid-2021.”  When the ‘Great Recession’ happened at the end of the last decade, many individuals suddenly experienced unemployment, a drop in retirement savings and the value of other investments due to the stock market crash and a reduced ability to pay debts.  Here are tips to ‘recession proof’ your finances so, when the next crash happens, you won’t be caught off guard.

Protect Your Earning Power with ‘Recession Proof Jobs’

The best way to ‘recession proof’ your finances is to protect your source of income.  According to Glassdoor’s Chief Economist, Andrew Chamberlain, jobs in health care, education and utilities have not had as many job losses during a recession, while positions in construction, real estate, hospitality, and sales (especially bigger ticket items) are most at risk.  If you are looking for a ‘recession- proof’ job consider the following occupations:

  • Teacher/Professor – Students still need to go to class in a recession and, with higher unemployment, more adults will be looking at going back to colleges or vocational schools for training.
  • Almost anything in the medical profession- People are always getting sick or need health care creating a constant demand for nurses, doctors, physicians assistants, pharmacists and other healthcare providers.
  • Utility Worker – Recession or not, the lights need to be kept on, the water flowing and garbage picked up.
  • Law Enforcement – There is always a need for police, not matter what the economy is doing and typically, when city budgets are strained, law enforcement is the last to get cut.
  • Accountant/Tax Preparers – With companies struggling in a down economy, individuals that can keep a rein on expenses or minimize taxes are needed.
  • IT Staff – So much of our day to day life is dependent on technology and IT professionals, especially network administrators, are needed to keep computers running.
  • Repair People – In a down economy, people are more likely to fix an item rather than replace it.

Recession Proof Your Personal Finances

According to Debt.com, the best way to ‘recession proof’ your finances is to reduce debt and increase savings.  Some suggestions for reducing debt include

  • Pay off credit cards first, especially high interest cards and pay off balances each month moving forward
  • If you have federal student loans, consider refinancing or consolidation
  • Avoid long-term auto loans (especially anything longer than 5 years) – Cars, with few exceptions, lose their value as soon as you drive them off the lot and you can very quickly find yourself ‘upside down’ on an auto loan, making it more difficult to sell if you need to due to unemployment
  • Don’t do anything risky with your mortgage – Avoid borrowing against your home’s equity and, if you are looking at purchasing a home, stick with fixed, rather than variable rate loans.  The last recession taught us that interest-only loans, ‘no payments now, balloon payments later’ and other types of ‘creative financing’ are not your friend in an economic downturn.

Debt.com also recommends increasing your safety net by adding to your savings.

  • Always have at least 3-6 months of budgeted expenses in a liquid savings account that you can access and live on in case you lose your job.
  • And, if you anticipate a recession and being unemployed for awhile, experts say you should save up to a year’s worth of expenses.
  • If the economy takes a turn for the worse, the Federal Reserve will lower interest rates which will lower your earnings on savings.  If you are worried about a recession, the best savings account is a fixed-rate one, rather than one with a variable rate such as a money market account.  Shop around as some fixed rate accounts are currently offering up to a 2% annual yield.

Recession Proof Your Stocks and Investments

During a downturn in the stock market, it can be tempting to sell stocks or cash out of a retirement plan.  However, financial experts strongly recommend that you not do that.  According to Nick Strain, Senior Wealth Advisor with the investment firm Halbert Hargrove, “borrowing from, or cashing out of, a retirement plan in a recession is the equivalent of selling a stock at lower price than what you bought it for.”  In fact, Strain recommends contributing more to a 401K or IRA during an economic downturn.  “During a recession, stocks are on sale.  The more you contribute to a retirement account during a recession, the better discounts that you will receive on stocks.  Then, when the market rebounds, your portfolio’s value will rise.”  Investors can ‘recession proof’ their stocks by choosing companies that sell lower priced merchandise or provide products and services that are essential, even in a downturn.  According to the personal finance site, Kiplinger, here are the best ‘recession-resistant’ stocks to buy:

  • Walmart
  • Dollar Tree
  • T.J. Maxx
  • McDonald’s
  • Rollins dba Orkin Pest Control
  • Auto Zone
  • Kellogg’s
  • Bristol-Myers Sqibb Pharmaceuticals
  • Brown Foreman, makers of Jack Daniels Whiskey
  • Hormel Foods (makers of Spam)

In general, the best way to ‘recession-proof’ your finances is to cut expenses and debt where you can, find a profession that will still be needed in a downturn and be conservative and patient with stocks and investments.  Recessions don’t last forever and those that take care to prepare will be able to better weather the economic storms. If you are looking for

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