5 Ways to Protect Your Money From a Recession
You've heard the warnings: inflation, stagflation, Trumpflation — all the "-flations" the news loves to hype. And for years, economists have been warning of a recession that still hasn't arrived.
Will it even happen? Honestly, no one can predict for certain.
I don't know about you, but I'm not gonna sit around waiting for bad times to hit before scrambling. I'd rather prepare my money now while things are calm.
Here are five smart moves to recession-proof your finances, before a storm hits.
1. Build an emergency buffer (even a small one helps)
Cash is king during a recession. A recent study from Vanguard found that even a small emergency fund — just $2,000 — can boost financial wellbeing by more than 20%.
That said, if you can save even more you should. Most experts (and I agree) recommend having three to six months' worth of expenses on hand. And with the backing of FDIC insurance, your savings are protected up to $250,000 per bank, per depositor in the event of bank failure.
This week: Open a high-yield savings account and automate $50 a week into it. That first $2,000 might matter more than you think.
2. Lock in high CD rates now
If a recession hits, the Federal Reserve typically slashes interest rates. This means we'll be saying bye-bye to the awesome yields we've had for savings accounts lately.
If you've got extra cash, it's not a bad idea to lock in rates with a short-term certificate of deposit (CD).
Right now 6- to 12-month CDs are offering around 4.00% APY. This gives you a guaranteed return, even if rates tank later this year. And like high-yield savings accounts, CDs come with FDIC protection.
Compare the best CDs available today, and lock in your return before rates lower any further.
3. Create a "bare-bones" budget
Hope for the best, but prepare for the worst. A bare-bones budget is your back-up spending plan if all hell breaks loose. It only includes essential things, like housing, groceries, and basics you need to live on.
Just knowing your minimum spend is really powerful. If and when the time comes for you to cut back, you'll already be prepared and know exactly how far you can stretch your dollars.
4. Pay down high-interest debt ASAP
Recessions often come with job losses or reduced income. And high-interest credit card debt only adds more fuel to the fire.
If you're carrying credit card balances month to month, make it a top priority to pay them off.
Even better — see if you qualify for a 0% APR credit card and transfer your balance over. The cards on our list can give you up to 21 months with no interest, buying you time to catch up.
5. Diversify your investments
A recession often hits the stock market hard. But not every part of the market reacts the same way.
Diversification means spreading your investments across different types of assets. It can soften the blow in market downturns, while keeping your money growing long term.
If you're worried or confused about how your money is invested, it can be really helpful to connect with an advisor.
Final thoughts
Don't try and predict where the economy is headed. Just prepare your finances regardless.
Even one move today — like opening a high-yield savings account or shifting your portfolio — can make a big difference in a downturn.
Check out Old National's CD options.
This article was written by Joel O'Leary from The Motley Fool and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.
