Though there’s no telling when our next recession will hit, in a study released last month by the Nationwide Retirement Institute, most older Americans said they expect one in five years or less.
Of course, recessions are a natural part of the economic cycle and they can even be mild in nature. But considering that our last recession was a doozy, it’s natural for folks to get concerned about another downturn.
Thankfully, there are things that all of us can do to prepare for our country’s next recession, regardless of when it hits. Here are a few moves that’ll help you get ready.
1. Build an emergency fund
When a recession strikes, investment portfolios tend to plummet, jobs become less stable, and raises become far less widespread. If you want to protect yourself from the effects of a recession, have a fully loaded emergency fund with six months’ worth of living expenses socked away — or more if your income is variable to begin with. This will give you the option to avoid liquidating investments at a loss when you need cash. It’ll also give you some reserves to fall back on if you lose your job or find that your hours are cut.
2. Diversify your investments
A diversified portfolio is an investor’s best friend, even during periods of economic prosperity. But during downturns, it could spell the difference between taking serious losses and recovering just fine.
A diversified portfolio is one with a wide range of investments, including individual stocks and bonds, as well as mutual funds or index funds. Furthermore, those assets should be spread across different sectors of the market. For example, when choosing your individual stocks, you might load up on biotech companies, energy companies, and retailers so that if one of those segments does well, it can offset losses in another (or losses that stem from a broader market dip).
3. Get a side job
When the economy, on the whole, takes a dive, individual businesses tend to suffer. And that can all too easily lead the way to job loss. A good way to protect yourself, therefore, is to establish a solid side hustle while employed in a full-time capacity. This way, if you lose your primary source of income, you’ll have a second stream to rely on as you look to get rehired.
You might even go so far as to take on a couple of different side gigs to lower your chances of finding yourself completely out of work. For example, you might retain your steady job as an engineer, design websites a couple of nights a week, and work as a dog walker on weekends. Incidentally, having that side gig will make it easier for you to build savings, which, as we just learned, is a crucial step in preparing for a recession.
4. Lower your fixed living costs
When your income drops, it becomes all the more difficult to keep up with your bills. One final thing you can do to be recession-ready is work on reducing some of the fixed expenses that currently eat up a large chunk of your paycheck. For example, if you’re paying $ 1,500 a month for your mortgage, you might consider downsizing to a smaller property that only costs you $ 1,000 a month. That way, if your income takes a beating, you’ll have an easier time managing your housing costs.
Whether our next recession hits next year, the following year, or a decade later, it never hurts to be prepared. The more steps you take to get ready, the more peace of mind you’ll buy yourself when the economy inevitably takes its next turn for the worse.