Buzz
As previously discussed, the extended duration of the current bull market has sparked concerns. Eventually, it must come to an end, and some economists are predicting a recession by the close of 2020. If that prediction is accurate, you have approximately two years to get your financial affairs in order. What should you focus on first?
If you already have a solid, long-term financial plan, stick with it—there's no need to overhaul everything simply due to fears about a potential economic downturn. For younger individuals, especially, don't shy away from stocks. Time in the market is important, not trying to time the market. However, if the thought of a recession and its potential impact on your finances is causing you significant stress, there's one step you can take to help yourself and possibly ease some of the worry: Increase your cash savings.
How should you do that? It doesn't necessarily mean cutting back on your investments (though any funds needed within the next three to five years should not be in stocks). Rather, it involves making tough decisions about areas of your life where you can cut back on unnecessary spending. This could mean dining out or drinking less, canceling expensive gym or cable subscriptions, staying in a less expensive apartment for another year, or postponing the latest iPhone upgrade. Whatever your specific situation allows, you likely know best where you can save. All of those small savings can be placed in a high-yield savings account, a short-term CD, or used to pay down debt now. If you decide to focus on paying off debt, that’s one less thing to worry about when the economy takes a downturn.
If you haven't yet built up a three-to-six-month emergency fund, that should be your top priority. A recession typically brings a higher risk of layoffs or reduced hours, depending on the industry you're in.
Another important step to take now, before things take a turn for the worse: Develop a Plan B. If the worst-case scenario unfolds in a year or so and you lose your job, do you have a strategy for generating quick income or staying afloat? It’s times like these, when things seem relatively stable, that you should carve out time to think about this. It could involve creating a list of companies or contacts you could reach out to if your business starts to waver, or reconnecting with former colleagues to get back on their radar. It could also mean developing new skills now that you can use later.
But above all, focus on building a financial cushion for yourself. The more precarious your job situation (for example, if you’re a freelancer or in an unstable industry), the more cash you should have on hand.
