4 Ways to Protect Your Money Against the Recession, According to a Financial Planner

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  • As a financial planner, everyone I work with wants to know how to protect their finances against recession.
  • I recommend building emergency savings for three to six months first and paying off debt.
  • It’s also important to keep your money invested and get advanced job training while you can.

I’m a financial planner who also hosts an on-call financial talk show. My private clients and callers want to know what they need to do to prepare for a


recession

.

Going through a recession in your financial life is as inevitable as death and taxes. No economist can predict the exact date when a recession will hit. I tell my clients and callers that with the right financial plan, you can recession-proof your dream retirement. Here are four things you should do.

1. Build up your savings

An emergency savings fund is a fundamental part of any good personal financial plan. As a Certified Financial Planner, I teach that a sufficient emergency savings fund is three to six months of your household expenses. Remember: these are your needs, not your wants. This cash reserve should be stored in a high-yield savings account. If you are currently living paycheck to paycheck, you are not ready for a recession. Saving money isn’t a sexy decision to make with your money, but it’s the first thing you need to do.

Unexpected financial emergencies tend to happen at the worst of times. Sudden unemployment can have a devastating effect on your long-term financial goals. Liquidating retirement accounts and paying personal expenses with credit cards can set back your financial goals for years. I advise my clients to focus on building up their savings. The emergency savings fund can protect their retirement plans during a recession.

2. Pay off the debt

Surviving a recession requires disciplined budgeting. Now is the best time to pay off or pay off a debt. This will give your budget the headroom and flexibility to meet new demand caused by rising prices and falling wages.

In times of recession, households have to make many sacrifices. Paying off your debts now will prevent you from destroying your


credit score

and go into even more debt when debt payments are missed in order to stay up to date with essential monthly payments.

3. Don’t leave the market

Our economy goes through the seasons; we have cycles of ups and downs. During a recession, far too many people get scared and sell their investments too soon. Investing has inherent risks, but needlessly liquidating your retirement account or other investment account can hurt your financial plan for years.

Tax penalties, locked-in losses and loss of long-term capital gain are some of the consequences of early withdrawals. When you add up all the downsides of an early market pullback, it should overcome your fear of short-term risk.

If you are not approaching retirement, a bear market is not a setback. You can take advantage of lower market prices if you average out, that is, place the same amount in the market at regular intervals. If you are approaching retirement, you should contact a financial planner to help you rebalance your portfolio to minimize your exposure to the coming recession.

4. Get or update advanced professional training

Getting advanced job training before a recession is like putting on armor before a battle. As the economy slows, the labor market becomes more competitive. Workers with a higher skill set have a better chance of not being laid off and they are more likely to find a new job.

I advise people concerned about the coming recession to seek out all advanced training opportunities. Advanced training opportunities don’t have to be expensive, they can be found at junior colleges, trade schools, and through low-cost certifications

The key to a recession-proof financial plan is to avoid the smoke and mirrors of social media hype. Contact a financial planner and follow the recommendations, no matter how boring.

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