The Great Recession may have ended 10 years ago, but many Americans still haven’t shaken off the feeling of unease that came with the last downturn. Yes, unemployment is at a historic low and the stock market is on fire. But some have been left behind. Good jobs are scarce for people who lack the skills needed in the new economy. The wealth gap is growing. Plus, wages are stagnant, and housing costs are on the rise.
All that leaves many woefully unprepared for the next recession. While we can’t predict when the next downturn will arrive, it’s pretty much guaranteed one will happen eventually. Whether the economy starts to goes south next week or in the next few years, it pays to be ready. Here are five things you can do to get ready for the next recession.
1. Pay down your debt
After pulling back on spending during last recession, Americans have started racking up debt again. The average credit card balance in 2017 was $6,354, according to a report from Experian. Overall non-mortgage debt was just under $33,000.
Big debt payments can make it hard to keep your head above water if your income takes a hit in the next recession. Start paying down your debt now. Cut unnecessary expenses and look for ways to earn extra cash so you can cut down your balance before a crisis happens.
2. Feed your emergency fund
One in four Americans don’t have money set aside for unexpected expenses, a CIT Bank survey found. With slim savings accounts, many end up turning to credit cards or home equity loans to cover bills when times are tough – a potentially expensive solution that can end up creating a bigger financial problem.
Experts usually recommend having at least three to six months of living expenses on hand. That might seem hard to achieve if your budget is already tight, but setting aside even a little bit helps – and could motivate you to save more. Start by transferring a few dollars from each paycheck to a savings account to get the ball rolling. Selling unwanted items, saving any windfalls you receive (like a tax refund), or earning some cash on the side can also build a much-needed financial cushion.
3. Review your budget
Only one-in-three American households bother to use a budget to track their spending. If you’re among the two-thirds who don’t budget, now is the time to start. Understanding how much money you have coming in and where it goes will help you figure out how you can reduce spending if the need arises. You might even identify things you can cut today, and then use those extra dollars to pay down debt or increase your savings.
4. Recession-proof your career
Losing your job is scary, especially if it happens during an economic downturn when companies are reluctant to hire. To minimize your chances of getting laid off, make yourself indispensable at work. Take on extra responsibilities, make sure your boss is aware of your contributions, and keep your skills sharp. Keep your resume up-to-date and stay in touch with your professional network, so you’re ready to hit the ground running if you do need to find a new position.
5. Assess your risk
Even if you keep your job, a recession can hurt you in other ways. Bonuses and overtime hours can dry up. Your earnings may slip if you’re in a career that depends on commissions. If you think your income could shrink during a recession, it’s even more important to take steps now to prepare.
Banks may make it harder to borrow money during the next recession. Lower credit limits, closed accounts, and tighter lending standards could be a challenge if you’re relying on debt to fund your current lifestyle. That’s even more reason to develop a budget and boost your savings.
Check out The Cheat Sheet on Facebook!