Preparing Your Finances For a Recession | Richard Banks & Associates, P.C.

It’s not uncommon to hear rumblings of recession from time to time, especially as of late. With the Great Recession of 2007 still remaining a dark reminder of how bad things can get, it’s always best to learn from the situation and prepare yourself, your family and your finances for another recession.

The Facts About Recessions

First you should remember that recessions are a natural part of the economy, which resemble the tides with the ways it experiences highs and lows.

The National Bureau of Economic Research found that there were 33 business cycles in the U.S. between 1854 and 2009. A full business cycle averages 4.7 years, with the average length of a growing economy at 3.2 years and the average recession lasting 1.5 years. Simply put, a booming economy will ultimately lead to a bubble that bursts.

After having begun December 2007, the Great Recession ended in June 2009, which means we are just past the 10 year mark and most likely due for another time of recession.

Three Ideal Ways to Prepare For a Recession

Thinking about the possibility of another recession may be a worrying and stressful thought, but there are steps you can take to help prevent severe financial strain when the next one occurs.

  1. Create an emergency fund. Having an emergency fund can help reduce your reliance on credit cards for those unexpected situations. A good goal is to start at $1,000 in a savings account, with the ideal emergency fund being one that could cover at least six months of expenses in case the worst should happen.

  2. Lower your debt. Not only does paying down your debt faster help save you big money in interest alone, but it can help make sure your expenses do not become overwhelming. Plus, having less debt can boost your credit score, which often makes it easier to borrow money at better rates if absolutely necessary.

  3. Make adjustments to your 401(k) or investment portfolio. Did you know that the 2008 stock market crash wiped out trillions of dollars that were in retirement accounts? While we hope this is never the case again, it could be smart to evaluate your own 401(k) or investment portfolio to make sure you’re not too heavily invested in stocks. Age plays a big role here too, and it could be best to move more of those funds into bonds if you’re approaching retirement. A financial advisor can help provide even more insight on how to adjust or not adjust your retirement savings and strategy.

Considering another recession is understandably troublesome, but is something that we must always be prepared for. Afterall, it’s always better to plan for the worst and be surprised by better scenarios than the alternative.

If your financial situation is resembling more of a drowning situation than treading water, you may be able to benefit from filing bankruptcy. Know that the team at Richard Banks & Associates, P.C. is always here to help you sort through the best options.