While we haven’t technically entered a recession yet, millions of Americans are nervous about the future of the economy. In fact, about 56% of American adults say they are financially unprepared for a possible recession, according to a recent survey by Insight Global.
It is not clear when or if a recession could occur. But there are some steps you can take right now to make sure you’re as prepared as possible for any time a recession strikes.
1. Increase your emergency savings
One of the best ways to prepare your finances for tough economic times is to build up your emergency savings.
Ideally, try to have enough savings to cover at least three to six months of general living expenses. If you’re especially worried about losing your job, you can try saving even more than that. In general, the larger your safety net, the less you have to worry about the impact of a recession.
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Even if you have little or no savings now, every dollar counts. Saving even a little in an emergency fund is much better than doing nothing. If you can’t get six months’ savings right now, try to save as much as you can.
2. Consider how much you can invest
If you have a solid emergency fund, then consider your investments. Recessions can actually be smart opportunities to invest, because stock prices are often much lower, giving you the opportunity to buy discounted quality stock.
That said, it’s important to only invest money that you’re comfortable leaving in the market for at least the next few years.
If we do face a recession, no one knows how bad it will be or how long it will last. There is a possibility that the stock market could fall further, and the last thing you want is to be forced to sell your investments when stock prices are rock bottom. But if you leave your money invested until the market recovers, you’re less likely to lose anything.
3. Avoid getting caught up in the motions of everyday life
When the stock market is unstable and the economy is tanking, it can be tempting to check your portfolio every day or constantly stay up-to-date with the latest news.
While there is nothing wrong with staying informed, keeping a close eye on these daily movements can be overwhelming at times. And that can sometimes lead to less than stellar decisions, like taking your money out of the market in a moment of panic.
Instead, do your best to keep a long-term perspective. Historically, the economy and the stock market have bounced back from every recession they’ve experienced. Given enough time, it is very likely that they will recover from this recession as well. When you avoid obsessing over these daily moves, it’s easier to focus on the future.
No one knows for sure when or if we’ll face a recession, but it’s wise to start preparing anyway. When you have a plan in place, you can rest easier knowing you’re ready for anything that might happen.
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