Set up an emergency fund:
- “Evaluate how secure your job is and if there is a chance you might loose it, focus on how much is in your cash reserves or emergency fund,” says Brown. The general rule of thumb is to put away three to six months of your salary. Start looking at your expenses now so you can best estimate what it will take to create the right cushion.
Control debt:
- “You should never have a balance on your credit card,” says Failla. “If you are charging more than you can pay each month, then you're spending too much.” Carrying a balance on your mortgage is acceptable because the interest is tax deductible and it’s being paid towards something of great value, your house. Although mortgage debt is okay, be sure it's the right kind for your budget.
Shore up your portfolio:
- A recession will certainly put a strain on your stock portfolio, so this a good time to examine your asset allocation. “I don't recommend making drastic moves, like going 100% cash with the intent to buy back when the market goes down,” says Failla. “Instead, I would suggest making your stock holdings more defensive, like dividends paying ETFs [exchange traded mutual funds].” And make sure you’re properly diversified to defend against a hit to a specific sector. Have “a good balance of stocks, mutual funds and bonds,” says Brown. “And consider things like real estate investment trusts and commodities.” Work with a professional to make sure it’s done right.
Although these measures should already be part of your regular financial plan, if you haven’t addressed these items yet, the possibility of an impending recession is a good time to start working toward those goals.
