The end is near, at least according to a new Axios poll revealing that 65% of Americans believe a recession will likely hit the economy this year. Like the flu, a recession can vary in both length and severity. The most recent recession, which lasted from December 2007 until June 2009, was, by all accounts, the equivalent of a long-term illness that required a long, painful recovery, while the comparatively mild downturn in 1970 was more of an annoying cough for the economy.
But no matter when the next recession hits or how damaging it is for the American economy, there are always steps you can take to mitigate the damage and protect your financial future. Here are four actions you should consider between now and the next recession to help put your mind at ease.
Track your spending
One way to prepare yourself for a recession is to start tracking your spending and (if you haven't already) build a budget. One of the ways you can do that is to use an app like Mint or to create an Excel spreadsheet and list your major spending categories like food, transportation, utilities, debt, entertainment and education. The key is to be diligent so that you get an accurate picture of where your money is going.
Increase your savings
Money saved is money earned, especially when the economy is going through a rough patch. Pay yourself first before paying anything else by putting your money in a high-interest savings account to maximize your savings. Create an emergency fund with enough money to cover three to six months of expenses by adding money to the account before you pay your bills. This is also a good time to add to your retirement savings. The point is to save so that you have money in the bank to ride out a recession.
Reduce existing debt
The less debt you have, the stronger your financial position will be during a recession. Here’s one way to tackle your existing debt:
First, take an inventory of your outstanding debt by making a list of each debt, its monthly payment, interest rate and the expected time to pay it off. Then, prioritize which debts to pay off first, with the debts having the highest interest topping your list.
Create a budget and reduce frivolous spending, putting the money saved toward paying off your debt.
Pay down more than the minimum amount due so that you can eliminate your debts more quickly. Consider refinancing high-interest debt. Explore getting a balance transfer card with a lower interest rate or debt consolidation loans. Try negotiating with creditors to reduce the amount owed or the interest rate.
Find another income source
Having multiple streams of income is a great way to fortify your financial position in the event of an economic downturn. Given your day job is probably your no. 1 source income, is it the right time to ask for a promotion or raise? Work extra hours? The goal is to earn even more from your primary income source.
You can take a second job or put your talents to use in a side hustle, such as pet sitting, resume writing or repairing computers. Consider earning a college degree in a well-paying profession with good job prospects such as accounting, chemistry or finance.
Finally, if you have investments, diversifying your portfolio is a great way to reduce risk and increase income.